Analyst Note| Emma Williams |
We maintain our $228 fair value estimate for wide-moat ADP following another sound quarter in an uncertain macroeconomic environment. Second-quarter revenue growth of 9% year over year reflects a slight deceleration from 10% in the first quarter but remained supported by continued, albeit moderating, employment growth, higher interest on client funds, and resilient retention, partly offset by foreign exchange headwinds. Higher employment within ADP’s client base drove improved operating leverage, and greater contribution from ultra-high-margin client funds interest revenue supported a healthy 120-basis-point year-on-year adjusted operating margin expansion to 24.3%. After falling following the results release, shares currently trade in line with our unchanged valuation.