Automatic Data Processing, Inc. (ADP) Intrinsic Value & DCF Valuation
Software - Application · NASDAQ
Current Price
$262.36
Intrinsic Value
$323.33
+18.9% margin of safety
What Is Automatic Data Processing, Inc.'s Intrinsic Value?
As of 2026-10-06, the base-case DCF model estimates the intrinsic value of Automatic Data Processing, Inc. (ADP) at $323.33 per share, compared with a market price of $262.36, a margin of safety of +18.9%. The base case assumes 9.9% annual free cash flow growth and a 10.0% discount rate.
Across the sensitivity grid the estimate spans $263.16 to $392.17. Intrinsic value is an estimate built on assumptions, not a fact. A higher discount rate or slower growth pushes the estimate down, while stronger cash flow growth lifts it.
How the DCF works · Recalculate with your own assumptions · What is intrinsic value?
Is Automatic Data Processing, Inc. (ADP) Undervalued?
At $262.36, ADP trades about 18.9% below the base-case intrinsic value estimate. That is a real discount, but it stays short of the 30% margin of safety required before calling a stock undervalued.
COMPETITIVE MOAT
↑Vast Payroll Data Network Effects
ADP's extensive historical payroll data creates a powerful network effect. This data is crucial for developing more accurate HR analytics and predictive models, which are difficult for competitors to replicate.
↑High Customer Switching Costs
Integrating ADP's comprehensive HR and payroll services into a company's operations creates significant switching costs. Migrating complex payroll data and processes to a new provider is time-consuming and risky.
↑Deep Ecosystem Integration
ADP's platform integrates deeply with numerous third-party HR and benefits providers. This broad ecosystem lock-in makes it challenging for clients to move away without disrupting their entire HR infrastructure.
INVESTMENT RISKS
↓Regulatory and Compliance Changes
ADP's business is heavily reliant on navigating complex and ever-changing labor laws and tax regulations. Significant shifts in these regulations could necessitate costly system updates and potentially impact service delivery.
↓Data Security and Privacy Breaches
As a custodian of sensitive employee payroll and personal data, ADP faces substantial risk from cyberattacks and data breaches. A major security incident could severely damage its reputation and lead to significant financial penalties.
↓Economic Downturn Impact on Hiring
While ADP's September hiring report showed an increase, a broader economic downturn could lead to reduced hiring and business closures. This would directly impact ADP's revenue streams tied to employee counts and payroll processing.
Base case
ADP base case valuation
Intrinsic Value
$323.33
Margin of safety
+18.9%
Expected annual return
+4.3%
Base case assumptions: 9.9% annual growth, 10.0% discount rate, 21.06x exit multiple, 5 year projection. Data as of 2026-10-06.
This base case uses default assumptions and is not financial advice. The intrinsic value changes significantly when the growth rate or discount rate changes. Open the calculator to set your own assumptions and see the full sensitivity range.
Customize the ADP valuation
Adjust the growth rate, discount rate, and exit multiple to see how the intrinsic value and margin of safety for Automatic Data Processing, Inc. respond.
Open DCF Calculator for ADPCompany Overview
Automatic Data Processing, Inc. (ADP) is a global provider of cloud-based solutions designed for human capital management (HCM). The company organizes its operations into two primary segments: Employer Services and Professional Employer Organization (PEO). Through its Employer Services division, ADP delivers strategic, cloud-powered platforms and comprehensive human resources (HR) outsourcing. This encompasses a wide array of services such as payroll processing, benefits administration, talent acquisition and management, general HR and workforce management, insurance, retirement planning, and regulatory compliance, often integrated into holistic HCM solutions. Conversely, the Professional Employer Organization (PEO) segment specializes in offering HR outsourcing to small and mid-sized businesses, leveraging a co-employment framework. This segment's offerings span robust benefits packages, regulatory protection and compliance, talent engagement strategies, specialized HR expertise, all-encompassing outsourcing, and even recruitment process outsourcing. Established in 1949, ADP maintains its corporate headquarters in Roseland, New Jersey.
Financial Metrics — ADP Stock Valuation Data
Revenue/Share (TTM)
$54.95
FCF/Share (TTM)
$12.47
ROIC (TTM)
n/m
ROE (TTM)
70.2%
P/FCF
21.1x
EV/EBITDA
16.7x
FCF Yield
4.75%
Debt/Equity
0.87x
On a trailing twelve-month basis, ADP generates free cash flow per share of $12.47 alongside a ROIC of n/m, both central inputs for a DCF valuation. Its P/FCF ratio of 21.1x and FCF yield of 4.75% then frame how ADP is priced against peers on a cash flow basis.
Frequently Asked Questions
What is the intrinsic value of ADP?
Automatic Data Processing, Inc. currently generates $12.47 in free cash flow per share. At the current price of $262.36, a DCF model would discount these cash flows at an appropriate WACC and apply a terminal growth rate to arrive at an intrinsic value. The result depends heavily on your growth and discount rate assumptions — a 1% change in WACC typically shifts the fair value estimate by 10-15%. In MiniValuator the model uses a single discount rate that you can edit directly, 10% by default, rather than a computed WACC.
Is ADP undervalued?
ADP trades at a P/FCF ratio of 21.1x with a free cash flow yield of 4.75%. This P/FCF is in a moderate range. However, whether ADP is truly undervalued requires comparing the DCF intrinsic value to the current market price and evaluating whether the margin of safety is sufficient for your risk tolerance.
How do I value ADP stock using DCF?
To perform a DCF valuation on Automatic Data Processing, Inc.: (1) Start with the trailing free cash flow per share ($12.47) as the base, (2) project future FCF growth over 5-10 years based on Software - Application industry trends and company fundamentals, (3) apply a discount rate (WACC) reflecting ADP's risk profile — with a debt-to-equity of 0.87x, capital structure is an important factor, and (4) add a terminal value for cash flows beyond the projection period.
What is DCF valuation and how does it apply to ADP?
DCF (Discounted Cash Flow) estimates what a company is worth today based on its future cash generation. For Automatic Data Processing, Inc., this means projecting how much free cash flow the company will produce over the next 5-10 years, shaped by Software - Application trends, then discounting those amounts to today's dollars.
How does WACC affect ADP stock valuation?
WACC (Weighted Average Cost of Capital) is the discount rate in a DCF model — it reflects the minimum return investors require. For ADP, with a debt-to-equity ratio of 0.87x, the capital structure directly influences WACC. A 1% increase in WACC typically reduces the intrinsic value by 10-15%. At an EV/EBITDA of 16.7x, the market's implied discount rate can be reverse-engineered for comparison. In MiniValuator you set this discount rate yourself as a single editable number, 10% by default, instead of computing a formal WACC.
Learn More
- See ADP PE Valuation → — Earnings-based stock valuation using PE ratio analysis
- DCF Methodology — Step-by-step guide to discounted cash flow analysis
- PE Methodology — Guide to PE ratio stock valuation
- WACC — Understanding the discount rate used in DCF
- Margin of Safety — How to evaluate downside protection
- Intrinsic Value — How to evaluate stock fair value
- How to Calculate Intrinsic Value — Complete guide for investors
Related Valuations
All Technology valuationsDCF and P/E value ADP with different methods and assumptions, so the two conclusions can differ. Compare the P/E fair value.
Price as of 2026-10-06. Financial data from Financial Modeling Prep (trailing twelve months) · Valuation methodology by Charlie Wang.
This is an estimate, not investment advice.