QS Research · Michael Burry's Scion Capital analyst template · 2006
AUTOMATIC DATA PROCESSING INC (ADP)
As of 2026-11-11 · 12/15 boxes filled from SEC filings and market data
Report price $305.44 (close 2026-11-10)
Conclusion: PASS
Conviction medium · base case +6% · downside -24% · upside +14%
ADP is a high-quality, recurring payroll franchise earning 68.3% ROIC against a 6.3% WACC (N38, N39), but at $305.44 it trades at 26.6x TTM P/E and 17.6x EV/EBITDA, only 1.8% below its 52-week high (N1, N2, N29, N26). The independent peer-median P/E anchor is 28.1x, which gives a base value of $322.66, only +6% (N48). At today's 26.6x, the top of FY2027 GAAP EPS growth guidance (12-14%) gives about +14%; a 10% earnings decline and a compressed 22.6x P/E would give about -23.5% (S31, N29). The 2026-10-28 beat-and-raise already delivered the re-rating, and with guidance showing lower ES retention, ~1% U.S. pays per control and flat PEO margin, the risk/reward is not enough for a long; pass.
Key numbers
- Share price: $305.44
- Market cap: $120.58B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $22.26B
- EV / EBITDA (TTM): 17.6x
- P/E (TTM): 26.6x
- Price / book: 23.68x
- Revenue growth (latest fiscal year): +6.7%
- ROIC (TTM): 68.3%
- WACC: 6.3%
- Economic profit spread: +62.0 pts
The 15 boxes
- ✓ 1. Long-form business notes
ADP is a 1949-founded HCM and payroll outsourcer whose FY2021 10-K reports over 920,000 clients and over 38 million workers paid in 140 countries, organized around cloud HCM, HRO and Global Solutions. Revenue grew from $15.01B in FY2021 to $21.95B in FY2026 and $22.26B TTM to 2026-09-30, with net income of $4.41B FY2026 and $4.53B TTM and operating cash flow of $5.44B FY2026 and $5.45B TTM. The model also earns interest on client funds held before tax remittance, and the FY2026 source provided is risk-factor text rather than a segment-level business description.
- ✓ 2. Competitive advantage
The 10-K supports a scale-plus-licence advantage, not a pricing one: ADP calls itself one of the largest HCM providers, competes on quality, breadth and price, and holds regulated trust-bank and Binding Corporate Rules positions. The XBRL record shows steady revenue and profit growth with no loss year in FY2021-FY2026 and TTM to 2026-09-30, plus rising operating cash flow and falling share count. The sources do not give market share, margins, ROE/ROIC or churn, so the durability of the advantage cannot be sized numerically.
- ✓ 3. 10-Q takeaways
Q1 FY2027 (three months ended Sep 30, 2026) revenue rose 6% reported and 6% organic constant currency to $5,490.7M, with EBIT margin up 120 bps and adjusted EBIT margin up 130 bps; diluted EPS rose 14% and adjusted diluted EPS rose 13%. Cash flow was modestly higher, capex rose, and ADP returned $1.5B via $0.7B dividends and $0.8B buybacks. The 10-Q risk-factor update says no material changes, while the same-quarter release gives numeric, raised FY2027 guidance.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
Sign in with a QuantSignals Premium or Gold plan to read every box: each point linked to the SEC filing it came from, the bull and bear case, and the comparables. QS Research powers the signals behind FST, our autonomous trading agent.