ADP Earnings: Healthy Bookings and Interest Income Upside Offset by Soft Hiring

Wide-moat ADP posted a reasonable start to fiscal 2024, with healthy new business bookings led by demand for the professional employer organization, or PEO; and small business and compliance solutions; robust retention despite normalizing attrition; and marginal profitability uplift. Employment growth continues to decelerate as expected. However, the PEO saw a more rapid deceleration due to a skew to professional services and technology sectors that curbed hiring faster than the overall base. While we expect healthy new client demand and improving retention to support a stronger second half for the PEO, we've marginally trimmed our longer-term forecasts for the segment, resulting in a cut to our fair value estimate to $240, from $244. Despite a sharp selloff post-result, ADP shares screen as fairly valued.