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Automatic Data Processing, Inc. (ADP) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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Automatic Data Processing, Inc. (ADP)

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Intrinsic Value (DCF)

Current$257.07
→
Intrinsic$285.77
+11%
$186.92$285.77$482.41
Market implies 12% growth for 5 years
ADP appears fairly valued — current price aligns with our DCF estimate.
At $257, the market prices in 12% annual cash flow growth — a moderate expectation aligned with historical trends (15%).
Range: Bear $187 → Bull $482. Current price implies expectations below the base case, but well above the bear case.
Discount ↓Growth →11%13%15%17%
8%$358$391$426$463
10%$241$263$286$310
12%$179$195$212$230
14%$141$153$167$181

Bull Case

  • Bull case ($482) offers 88% upside at 18% growth, 8% discount
  • 10% margin of safety vs. base case estimate
  • Market-implied growth (12%) ≤ historical CAGR (15%)

Bear Case

  • Bear case ($187) implies 27% downside at 12% growth, 12% discount
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5-Year Free Cash Flow Projection

Year 1$5.47B
Year 2$6.27B
Year 3$7.19B
Year 4$8.24B
Year 5$9.45B
Terminal$149.68B

📐 Model Inputs

Growth Rate14.6%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate9.5%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Free Cash Flow$4.77BTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. See FAQ below for full methodology.

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Frequently Asked Questions

Is ADP stock undervalued or overvalued?
🟡 FAIRLY VALUED

ADP trades at $257.07, within 10% of our $285.77 intrinsic value estimate. At 9.5% WACC and 14.6% FCF growth, the market is pricing in assumptions roughly aligned with the 5-year historical CAGR. The valuation range spans $187.50 (bear) to $429.41 (bull).

What is ADP's intrinsic value?

Using a 5-year DCF model: Base FCF of $4.77B, projected at 14.6% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 9.5% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $5.72B net debt and dividing by 0.41B shares: Bear $187.50 | Base $285.77 | Bull $429.41. Current price $257.07 implies +9% to base case.

How is ADP's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 14.6% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=9.5%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($122.51B).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 25.7x.