Automatic Data Processing, Inc. (ADP) released its Q3 25 financial results on April 30, 2025. The company saw a 5.7% y/y increase in revenues, reaching $5.6bn. This growth was driven by new business bookings, strong client retention rates, higher zero-margin benefits pass-throughs, increased pricing, higher client funds interest revenue, and the acquisition of WorkForce Software. Net earnings climbed 5.5% to $1.2bn. Adjusted EBIT rose by 5.9% to $1.6bn, and Adjusted EBIT margin reached 29.3%. Reported EPS increased by 6.2% y/y to $3.07. Diluted EPS increased 6.3% to $3.06.
The company’s Q3 25 revenues surpassed analyst expectations by 1.1%, leading to a positive market reaction. Following the earnings announcement, the stock price rose by 3% over the subsequent two weeks.
Founded in 1949, Automatic Data Processing, Inc. (ADP) is a leading global provider of cloud-based human capital management (HCM) solutions. ADP’s comprehensive services encompass HR, payroll, talent management, time tracking, tax, and benefits administration. The company offers business outsourcing services, analytics, and compliance expertise. Serving 1.1m clients, ADP processes payroll for over 42m workers across more than 140 countries and territories. It acquired PEI (Procesamiento Externo de Informacion, S.C.) and WorkForce Software in 2024.
It has 2 reportable segments, Employer Services and Professional Employer Organization (“PEO”) which contribute 68% and 32% of revenue as of FY 24, respectively. Geographically, the majority of ADP’s sales come from the US, accounting for 88% of its revenue, followed by Europe at 8%, Canada at 2%, and other regions at 2%.
Consistent cash flows
ADP achieved a CAGR in revenue of 8.6% from FY 21 to FY 24, reaching $19.2bn in FY 24 fueled by new business bookings, an increase in zero-margin benefits pass-throughs, higher pays per control, sustained strong client retention, an increase in interest on funds held for clients, and an increase in pricing.
Operating income increased by 13.1% over the same period, reaching $4.9bn in FY 24. Net income also grew at a CAGR of 13.0%, reaching $3.7bn in FY 24. Furthermore, operating margins expanded from 22.5% in FY 21 to 25.5% in FY 24 reflecting the company’s operational efficiencies. Net margins also improved from 17.3% in FY 21 to 19.5% in FY 24.
Cash flows from operations have consistently been positive for the past three years and grew at a CAGR of 10.4%, rising from $3.1bn in FY 21 to $4.2bn in FY 24. In addition, FCF has been positive for the past three years, reaching $3.9bn in FY 24, underscoring the company’s solid cash generation and financial stability.
The analysts project a revenue CAGR of 6.0% over FY 24-27, reaching $22.8bn. Likewise, analysts estimate an increase in operating income, with a CAGR of 8.3% CAGR, resulting in $6.2bn and operating margins of 27.2% in FY 27. Net profit is also expected to rise by 8.2% CAGR, reaching $4.7bn with net profit margins of 20.8% in FY 27.
The company’s local peer, Accenture PLC, achieved a revenue 3-year CAGR of 8.7%, reaching $64.9bn in FY 24. Its operating profit CAGR was 9.4%, reaching $10bn, and its net profit CAGR was 7.1%, reaching $7.2bn in FY 24.
Upward revision in adjusted EBIT margins
ADP’s consolidated FY 25 outlook includes revenue growth of 6% to 7%. The company has raised its full-year guidance, no expecting adjusted EBIT margin expansion of 40 to 50 bp, up from the earlier January guidance of 30 to 50 bp. Adjusted diluted EPS growth is projected at 8% to 9%, revised from the previous guidance of 7% to 9%. Strong 3Q results position ADP for robust overall fiscal 2025 performance.
For FY 26, slower economic growth is expected due to macro uncertainty, affecting pay per control and international sales. However, ADP’s laddering strategy should enhance yields from its client fund’s portfolio.
Robust stock performance
The company’s stock showed stronger returns compared to its local peer, Accenture PLC. Over the past year, the company’s stock rose by 25.4%, whereas Accenture PLC’s stock increased by 7.4%.
ADP has maintained an average dividend yield of 2.1% over the past three years. In FY 24, the company paid a dividend of $5.45 per share, resulting in a dividend yield of 2.3% and a payout of 59.9%. Analysts anticipate that the dividend will increase to $6.63 per share by FY 27.
The company is currently trading at a P/E of 30.7x, higher than its 3-year historical P/E of 27.7x and its local peer, Accenture PLC, at 24.0x. Similarly, its EV/EBITDA is 21.2x, exceeding its historical average of 19.1x and Accenture PLC’s 14.4x.
The company is somewhat liked by 18 analysts covering the stock, two have ‘Buy’ ratings, two have ‘Outperform’ ratings, and 13 have ‘Hold’ ratings, for an average target price of $315, implying 2.7% upside potential from the current price.
Overall, the company is positioned for success with its strong growth trajectory, operational efficiencies, robust cash flow growth, healthy new business pipelines, sustained client retention rates and strategic acquisitions. The stock has delivered good returns, with analysts optimistic about future revenue and earnings. However, risks include macroeconomic uncertainty, particularly affecting international operations, cybersecurity threats, and rapid technological changes such as AI which could impact its financial performance.
