Automatic Data Processing, Inc. (ADP) Stock Valuation — DCF Analysis
Staffing & Employment Services · NASDAQ
Current Price
$226.21
Intrinsic Value
$277.9
+18.6% margin of safety
COMPETITIVE MOAT
↑Dominant Payroll Processing Platform
ADP's extensive client base and deeply integrated payroll and HR systems create significant switching costs for businesses. This entrenched position makes it difficult for competitors to dislodge them.
↑Brand Recognition and Trust
ADP is a household name in payroll and HR services, fostering strong brand recognition and trust among businesses of all sizes. This reputation is a significant barrier to entry for newer players.
↑Data Network Effects
The vast amount of anonymized payroll and employment data ADP collects provides valuable insights for its clients and enhances its product development. This data advantage is difficult for rivals to replicate.
INVESTMENT RISKS
↓Intensifying Competition
While ADP has a strong moat, the HR tech landscape is increasingly competitive with nimble startups and established players offering integrated solutions. This could pressure pricing and market share.
↓Technological Disruption
Emerging technologies in AI and automation could disrupt traditional payroll processing models. ADP must continuously innovate to maintain its technological edge and avoid obsolescence.
↓Regulatory and Compliance Changes
Changes in labor laws, tax regulations, and data privacy requirements can necessitate significant system updates and compliance efforts. Failure to adapt quickly could lead to penalties and client dissatisfaction.
Base case
ADP base case valuation
A base case discounted cash flow model for ADP estimates an intrinsic value of about $277.9 per share, against a current price of $226.21. The model assumes 8.4% annual free cash flow growth, a 10.0% discount rate, and a 18x exit multiple.
Intrinsic Value
$277.9
Margin of safety
+18.6%
Expected annual return
+4.2%
Base case assumptions: 8.4% annual growth, 10.0% discount rate, 18x exit multiple, 5 year projection. Data as of 2026-06-12.
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)
$53.85
FCF/Share (TTM)
$12.84
ROIC (TTM)
25.5%
ROE (TTM)
68.7%
P/FCF
17.6x
EV/EBITDA
14.0x
FCF Yield
5.70%
Debt/Equity
0.63x
Based on trailing twelve-month data, ADP shows a free cash flow per share of $12.84 and a ROIC of 25.5%, key inputs for stock valuation using the DCF method. The P/FCF ratio of 17.6x and FCF yield of 5.70% are important context metrics when evaluating ADP's stock valuation relative to peers.
Frequently Asked Questions
What is the intrinsic value of ADP?
Automatic Data Processing, Inc. currently generates $12.84 in free cash flow per share. At the current price of $226.21, 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 17.6x with a free cash flow yield of 5.70%. 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 ($12.84) as the base, (2) project future FCF growth over 5-10 years based on Staffing & Employment Services industry trends and company fundamentals, (3) apply a discount rate (WACC) reflecting ADP's risk profile — with a debt-to-equity of 0.63x, 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 Staffing & Employment Services trends, then discounting those amounts to today's dollars. ADP's ROIC of 25.5% indicates strong capital efficiency, which supports higher growth assumptions in the DCF model.
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 0.63x, the capital structure directly influences WACC. A 1% increase in WACC typically reduces the intrinsic value by 10-15%. At an EV/EBITDA of 14.0x, 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 Industrials 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 2026-06-12. Financial data from Financial Modeling Prep (trailing twelve months) · Valuation methodology by Charlie Wang.
This is an estimate, not investment advice.