ADP
Automatic Data Processing
Dividend / Cash flow
★ Quality 81/100Price today
$277.62
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What this business is made of
The business
ADP is the payroll plumbing: installing it costs, ripping it out costs even more.
ADP processes payroll and manages human resources for more than 1 million clients, from small businesses to multinationals. It charges per employee processed and for HR services, with recurring revenue of $20.6B in FY2025. It also earns interest on client funds it holds before paying taxes and salaries.
The switching cost is brutal: migrating payroll for thousands of employees is risky and nobody does it on a whim. Four decades of tax compliance in every jurisdiction create a regulatory moat that's hard to replicate. Even so, the model flags this isn't a monopoly: Paychex, Workday and others fight for the turf.
Revenue history
From $15.0B to $20.6B in 4 years. The business grows steadily.
Where each $100 of sales goes
Revenue $21.9B · FY2026
Of every $100 in sales, $80 goes to costs and operations; $20 is left as net profit (20% margin).
Catalysts and risks
Float on client funds (~$2.5B in potential annual interest) benefits from sustained high rates.
Dividend raised 50 consecutive years; FCF of $4.8B backs continued increases.
Migration to higher-margin HR modules lifts revenue per client heading into FY2026.
Rate cuts directly compress float income, with no effort from the business.
Employment sensitivity: a recession reduces employees processed and, with it, revenue per unit.
No monopoly moat; competition in HR software pressures prices over the long term.
Charlie's note
“A boring toll on every North American paycheck — the kind of boring that makes you rich. At 22.7x normalized FCF you're paying for reliability, not for a discount; the waiting list to buy it cheap is long.”
Analysis · June 2026
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