On Friday, TD Cowen maintained its Hold rating on shares of Automatic Data Processing (NASDAQ: NASDAQ:ADP), while raising the price target to $285 from the previous $276. The adjustment follows the company's first-quarter performance, which was described as consistent and robust in bookings, thanks to a steady Human Capital Management (HCM) demand environment.
The analyst highlighted the contribution of WorkForce Software as a key factor in the revised forecast for ADP's fiscal year 2025, alongside a notable outperformance in the Employer Services (ES) and Professional Employer Organization (PEO) segments during the first quarter. These elements are believed to have influenced the company's outlook positively.
Automatic Data Processing's recent execution was recognized as aligning with expectations, with the analyst suggesting that the current performance level is likely to maintain the stock's position in the market. Despite the positive note on the company's execution and outlook, the analyst indicated that the valuation of ADP shares remains relatively high.
The new price target of $285 suggests a modest upside from the previous target but reflects the analyst's assessment of the company's steady performance and future prospects within the HCM sector. ADP's focus on delivering consistent results and the strategic role of acquisitions like WorkForce Software are seen as instrumental in shaping the company's trajectory.
In other recent news, Automatic Data Processing (ADP) reported a robust first-quarter performance with a 7% increase in revenue and a 12% rise in earnings per share (EPS), surpassing market expectations.
This strong showing is attributed to better-than-expected Employer Services retention and Professional Employer Organization bookings. Analysts at Stifel maintained a Hold rating on ADP shares, raising the price target to $305, while RBC Capital increased the price target to $315, reflecting the company's solid business performance and successful acquisition of WorkForce Software.
ADP has updated its revenue growth projection for fiscal year 2025 to 6-7%, an increase of approximately $200 million, due to the WorkForce Software acquisition and strong first-quarter results. However, the expected improvement in EBIT margin has been revised downward from an increase of 60-80 basis points year-over-year to 30-50 basis points, accounting for around $50 million in acquisition-related headwinds.
EPS growth estimates for fiscal year 2025 have been lowered by 100 basis points to 7-9%, reflecting these factors and a slight reduction in client funds interest.
InvestingPro Insights
Automatic Data Processing's (NASDAQ: ADP) recent performance aligns with TD Cowen's assessment, as reflected in the latest InvestingPro data. The company's market capitalization stands at an impressive $117.6 billion, underscoring its significant presence in the Professional Services industry. ADP's revenue growth of 6.63% over the last twelve months and a quarterly growth of 7.1% in Q1 2025 demonstrate the steady demand in the HCM sector mentioned in the article.
InvestingPro Tips highlight ADP's strong dividend history, having raised its dividend for 25 consecutive years and maintained payments for 51 years. This consistency in dividend growth, coupled with a current dividend yield of 1.94%, may appeal to income-focused investors. The company's profitability is evident, with a robust operating income margin of 26.5% and a return on assets of 7.79%.
However, it's worth noting that ADP is trading at a high P/E ratio of 30.6, which aligns with the analyst's observation about the stock's relatively high valuation. This is further supported by the InvestingPro Tip indicating that ADP is trading at high earnings and EBITDA multiples.
For investors seeking a deeper understanding of ADP's financial health and market position, InvestingPro offers 11 additional tips, providing a comprehensive analysis to inform investment decisions.
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