ADP is a quintessential mature compounder dominating the global HCM and payroll processing markets. Its wide moat, built on exceptionally high switching costs and network scale, generates highly predictable free cash flow. Fair value range: low $173, high $305, with mid-point at $241.
Target $240.64 implies ~9% upside, supporting a Hold/Accumulate rating.
High predictability of cash flows justifies a premium relative to peers.
Vulnerable to macroeconomic job contraction and falling interest rates compressing float yields.
Fair value
$241
Margin of safety
+8.4%
Confidence
90/100
Moat
9/10
Educational analysis only — not financial advice. Always do your own due diligence.
$220.44Price
Low $173.42
Mid $240.64
High $305.17
ADP is a quintessential mature compounder dominating the global HCM and payroll processing markets. Its wide moat, built on exceptionally high switching costs and network scale, generates highly predictable free cash flow.
Exceptionally high enterprise switching costs
Exceptionally high enterprise switching costs for core payroll systems.
Massive network scale across global
Massive network scale across global HCM markets.
Cycle upside
Higher-for-longer interest rates act as a 100% margin tailwind on PEO funds. Accelerated enterprise adoption of Next Gen HCM drives top-line growth.
ADP (ADP)'s intrinsic value is triangulated from discounted earnings at two cost-of-equity levels (strict CAPM with raw beta, moderate with adjusted beta), with owner earnings used as a floor for high-growth names.
Each model produces a per-share value; the composite range comes from a weighted blend driven by the archetype's model-applicability matrix. Cost of equity, terminal growth, and the deceleration curve are documented in the assumption ledger.
EPS-based models are discounted at cost of equity; FCFF models use WACC and then subtract net debt to bridge enterprise value to equity value. Each model is labelled with its discount-rate convention so the reader can verify the bridge.
Owner earnings (Buffett's definition) is net income plus depreciation and amortization minus maintenance capex. We do not subtract stock-based compensation again because net income already includes it; dilution is tracked separately via share-count growth.
FAQ
ADP — frequently asked questions
Based on our latest analysis, ADP looks modestly undervalued. The current price is $220 versus a composite fair-value midpoint of $241 (range $173–$305), which implies roughly 9.2% upside to the midpoint.
Our composite fair-value range for ADP is $173–$305, with a midpoint of $241. The range is triangulated across multiple valuation models (discounted earnings, forward earnings scenarios, peer multiples, and where applicable owner earnings or reverse DCF) and weighted by reliability for ADP's archetype.
Our current rating for ADP is Hold with a confidence score of 90/100. Hold. The tightly clustered synthesis yields a fair value of $240.64, representing ~9% upside. Strong underlying business quality fully justifies the current market price. This is research for educational purposes, not personalized investment advice.
The top risks our latest report flags for ADP are: Severe Macroeconomic Recession; Zero-Interest Rate Environment Return; Cloud-Native Enterprise Disruption. The single biggest risk is Severe Macroeconomic Recession: Deep recession triggers heavy workforce reductions, directly compressing seat-based billing metrics and organic revenue growth.
Our current rating for ADP is Hold, issued with a confidence score of 90/100 and a moat score of 9/10. The rating reflects the composite fair-value range ($173–$305) versus the current price of $220.
ADP is classified as a mature compounder stock. Archetype determines how every downstream parameter — discount rate, terminal growth, deceleration curve, terminal multiple, scenario probability weights, scorecard weights, and which valuation models are prioritized — is calibrated for ADP.
