ADP's Strategic Innovations and Partnerships Signal Robust Future Revenue Growth

What are the underlying business or industry changes driving this perspective?

• ADP's solid Employer Services new business bookings, reaching record volumes in Q2, especially across the small business portfolio, indicate a strong demand environment which should positively impact future revenue growth.
• The launch of ADP Assist, a cross-platform solution powered by Gen AI, suggests a significant investment in technology to enhance HR productivity, decision-making, and streamline tasks for clients. This innovation is likely to improve client retention and attract new clients, ultimately benefiting revenue growth.
• The strategic collaboration with Convera to enhance global payroll and cross-border payments showcases ADP's focus on expanding its international business segment, which could lead to increased global market share and impact international revenue positively.
• The strong PEO new business bookings exceeding expectations and anticipated reacceleration of the PEO business in the second half of the fiscal year signal a potential uplift in revenue from this segment.
• ADP's focus on providing unmatched expertise and outsourcing solutions, as well as leveraging global scale, including the introduction of in-house trust services for retirement plans, positions the company to potentially increase its competitive advantage and improve profitability over the long term.

Figures in the charts may differ slightly from those mentioned in the narrative

How have these above catalysts been quantified?

• Analysts are assuming Automatic Data Processing's revenue will grow by 5.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 19.1% today to 20.6% in 3 years time.
• Analysts expect EPS to reach $11.32 ($4.5 billion in earnings) by about February 2027, up from $8.66 today.

Figures in the charts may differ slightly from those mentioned in the narrative

What could happen that would invalidate this narrative?

• The potential deceleration in pays per control (PPC) growth, as indicated by maintaining a 1% to 2% growth outlook for the full year despite having seen 2% growth through the first half, could impact revenue growth.
• A potential increase in business bankruptcies in the second half of the fiscal year, as suggested might put pressure on Employer Services (ES) retention rates, indirectly affecting revenue.
• The reduction in fiscal 2024 client funds interest outlook due to changes in prevailing interest rates suggests lower than expected Client Funds Investment revenue, directly impacting net income.
• Contraction in PEO margins indicated by a projected 80 to 100 basis points decline for fiscal '24, could reduce profitability in this segment.
• The reliance on continuous pays per control (PPC) growth for PEO reacceleration may not materialize as expected, potentially resulting in lower revenue growth in the PEO segment.