ADP Set to Report Q1 FY’25 Earnings Amidst Strong Job Market

Payroll and HR solutions leader ADP (NASDAQ:ADP) is gearing up to release its Q1 FY’25 results on October 30. The upcoming report will reflect a period characterized by a resilient U.S. job market. Analysts forecast earnings at approximately $2.22 per share for the quarter, slightly above consensus estimates. Revenue is anticipated to rise by about 6% year-over-year to $4.78 billion. To understand the trends impacting this quarter’s performance, check our detailed analysis of ADP Earnings Preview.

Recent Performance and Industry Trends

ADP’s business has shown solid growth in recent quarters, fueled by a strong labor market. The company posted impressive Q4 FY’24 results (ending June 2024), where revenue exceeded expectations at $4.8 billion, reflecting a 6% increase compared to last year. Adjusted earnings were reported at $2.09 per share. This growth can be attributed to the rising demand for human capital management and HR outsourcing services, along with strong client retention rates. The number of average worksite employees paid through ADP’s professional employer organization (PEO) services grew by 3% from the prior quarter to around 742,000. Additionally, ADP has benefited from higher interest income on client funds due to the prevailing high interest rate environment, with interest revenues increasing 17% to $277 million in Q4. These trends are likely to continue into Q1 FY’25. For context, U.S. employers added 254,000 jobs in September 2024, indicating a continued positive sentiment towards the economy, which may enhance the demand for ADP’s services.

Stock Performance and Market Comparisons

The performance of ADP stock over the past four years has exhibited significant volatility, aligning closely with that of the S&P 500. Notably, returns for ADP were 43% in 2021, -1% in 2022, and 0% in 2023. In comparison, the Trefis High Quality (HQ) Portfolio, which includes a diverse mix of 30 stocks, has demonstrated less volatility and has outperformed the S&P 500 each year during the same timeframe. The HQ Portfolio has provided superior returns at a lower risk, exemplifying a smoother investment experience. Considering the current uncertain macroeconomic situation—marked by discussions of rate cuts and geopolitical tensions—could ADP encounter a scenario similar to 2023 and potentially underperform against the S&P over the next 12 months? Alternatively, will the stock experience a robust rebound?

Our outlook for ADP stock remains neutral, with a price estimate of $270, which is about 7% less than the current market value. The stock trades at a relatively high multiple of roughly 29 times consensus FY’25 earnings. While this valuation is supported by the company’s stable earning patterns and consistent dividends, the elevated price could pose risks, especially during a potential economic downturn. Small and medium-sized businesses often rely heavily on consumer spending, and concerns are rising as growth in U.S. consumer spending begins to slow, coinciding with a decrease in GDP growth. For further insights, see our analysis of ADP valuation regarding the factors influencing our price estimate for ADP stock.

[1] Returns as of 10/26/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.