ADP Reaps Benefits of Rising Interest Rates and Resilient Labor Markets in Q1; $228 FVE Unchanged

We maintain our $228 fair value estimate for wide-moat ADP following a sound start to fiscal 2023. First-quarter top-line growth of 10% year on year was supported by continued, albeit moderating, growth in employment, higher interest on client funds, like-for-like price increases, and resilient client retention, partly offset by foreign-exchange headwinds. Increasing employment within ADP’s client base drove improved operating leverage, and greater contribution from ultra-high-margin client funds interest revenue supported operating margin expansion of 30 basis points to 24.1%, offsetting increased labor and selling expenses.