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ADP – Market expectations are for Uniform ROA to reach new peaks, but management may be concerned about their productivity, retention rates, and Next Gen Payroll

July 19, 2021

  • Automatic Data Processing, Inc. (ADP:USA) currently trades at a recent high relative to UAFRS-based (Uniform) earnings, with a 32.3x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm, but management may be concerned about driving incremental productivity improvements, customer retention rates, and the potential of the Next Gen Payroll engine.
  • Specifically, management may lack confidence in their ability to drive incremental productivity improvements in the long run, remain above the industry benchmark for retention rates, and improve client funds interest revenues. Moreover, they may have concerns about the potential of the Next Gen Payroll engine, the launch of their Roll app, and the extension of their portfolio duration. Management may also lack confidence in their ability to improve client satisfaction and increase shareholder returns. Finally, they may be exaggerating the accelerated recovery of their clients’ buying decisions, and they may have concerns about their business’s overall growth potential.