On Monday, Mizuho Securities maintained its positive stance on Automatic Data Processing (NASDAQ:ADP), increasing its shares price target to $272 from the previous $265, while reiterating a Buy rating on the stock. The firm's optimism stems from ADP's narrowing growth gap with its Human Capital Management (HCM) peers.
ADP has shown a significant reduction in the growth spread, which now stands at approximately 700 basis points (bps), a marked improvement from the 1,400-1,500 bps seen in calendar years 2021 and 2022.
The narrowed growth differential is attributed to ADP's enhanced execution, as evidenced by a series of better-than-expected retention trends. Mizuho believes that ADP's improved performance justifies a higher relative valuation compared to its industry peers. Currently, ADP's stock is trading at 24 times the estimated consensus earnings per share (EPS) for 2025, which is lower than some of its peers, such as Paycor (NASDAQ:PYCR) at 36 times, Dayforce at 33 times, and Paylocity (NASDAQ:PCTY) at 25 times.
In light of ADP's improved execution, Mizuho has adjusted its target multiple from 25 times to 26 times. The firm underscores that better execution should lead to a higher multiple, which is the rationale behind the upgraded price target. ADP's progress in closing the organic growth gap with its next-generation peers is seen as a positive indicator of the company's trajectory.
Mizuho's latest assessment reflects confidence in ADP's strategic direction and operational efficiency. The upgrade in the price target to $272 from $265 is based on the premise that ADP's enhanced execution and growth trends merit a higher valuation in the market. The firm's reiteration of the Buy rating indicates a continued favorable outlook for ADP's shares.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.