Automatic Data Processing, Inc.ADPNASDAQ

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $288.77 per share(market-calibrated)

+34.3%

Upside to Fair Value

Current

$214.97

Pure Model

$295.31

Fair Value

$288.77

Bull Case

$354.27

Bear Case

$243.55

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

0.50%

Calibrated Growth

1.81%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $295.31.

What's Driving This Ratingfor ADP

✓

CapEx already efficient

CapEx at 2.30% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 34.49% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 6.02% revenue growth, fading to 2.25% by Year 10. Revenue reaches $29.0B (vs $20.6B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 175bps below the model's 2.25%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 71.71% indicates efficient cash generation. FCF reaches $7.7B by Year 10 (26.56% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.85

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.31%

Cost of Debt

Pre-tax Cost of Debt2.70%

Tax Rate23.17%

After-tax Cost of Debt2.08%

Equity Weight (E/V)90.61%

Debt Weight (D/V)9.39%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (90.61% × 8.31%) + (9.39% × 2.08%)

= 7.73%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$21.8B	$24.4B	$26.0B	$27.1B	$29.0B
EBIT	$7.5B	$8.4B	$9.0B	$9.4B	$10.0B
Tax	$1.7B	$2.0B	$2.1B	$2.2B	$2.3B
NOPAT	$5.8B	$6.5B	$6.9B	$7.2B	$7.7B
+ Depreciation	$556M	$623M	$663M	$693M	$741M
- Capex	$501M	$561M	$597M	$624M	$667M
- Δ NWC	$106M	$116M	$49M	$51M	$55M
Free Cash Flow	$5.7B	$6.4B	$6.9B	$7.2B	$7.7B
Discount Factor	0.928	0.800	0.689	0.594	0.475
Present Value	$5.3B	$5.1B	$4.8B	$4.3B	$3.7B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$7.7B

Terminal Growth Rate2.25%

WACC7.73%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$143.9B

PV of Terminal Value$68.4B

Exit Multiple Method

Year 10 EBITDA$10.7B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$193.5B

PV of Terminal Value$91.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$45.8B

PV of Terminal Value$68.4B

Enterprise Value$114.2B

(-) Net Debt$5.7B

Equity Value$108.4B

Shares Outstanding407M

Price per Share$266.39

Exit Multiple Method

PV of Projected FCFs$45.8B

PV of Terminal Value$91.9B

Enterprise Value$137.7B

(-) Net Debt$5.7B

Equity Value$132.0B

Shares Outstanding407M

Price per Share$324.24

Pure Model Fair Value

$295.31

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
5.73%	$368.88	$385.00	$405.74	$433.46	$472.38
6.73%	$319.23	$328.90	$340.73	$355.53	$374.60
7.73%	$281.65	$287.91	$295.31	$304.20	$315.08
8.73%	$251.71	$255.99	$260.92	$266.68	$273.49
9.73%	$227.03	$230.07	$233.51	$237.45	$241.99

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$243.55

13.3% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.06

Base Case

$295.31

37.4% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 0.85

Bull Case

$354.27

64.8% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.72

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth6.02%

Year 3 Revenue Growth5.85%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin34.49%

Tax Rate23.17%

Historical Capex / Rev2.30%

NWC / Revenue8.57%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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