Our 12-month target price for ADP is $310 based on a targeted P/E 27x-30x vs. our CY'25 EPS estimate. Previously we relied on the stock's relative multiple vs. the market as a guide, though this relationship has disbanded in recent quarters given relative outperformance in the S&P 500. As such, we believe ADP could realize an upper-20s forward P/E in an improving macro environment given the company's LDD EPS growth, double-digit dividend growth, and >40% ROE.

Upside and downside risks to our investment thesis and target price include:
• Employment – ADP's revenues are primarily dependent on the number of employees for which it processes payroll and benefits information. If employment growth in the US is different than our expectations, there could be risk to our earnings expectations.
• Interest Rates – ADP generates a substantial portion of its income from interest earned on its float portfolios. If the interest rate environment develops differently than we are expecting, our earnings expectations could be inaccurate.
• Foreign Operations – ADP generates nearly 20% of its revenues from outside the US, primarily in Europe and Canada. If the US dollar strengthens or weakens vs. the European and Canadian currencies, ADP's foreign income could be different than we expect.
If any of these risk factors has a greater downside impact than we anticipate, the share price may not achieve our price target. Conversely, if the impact of any of these upside risks is greater than we anticipate, the stock could exceed our price target.