DCF Studio

    ADP · NMS · Technology

    Automatic Data Processing, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 188.23

    Market price

    USD 271.22

    Implied upside

    -30.6%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Value Per Share

    Perpetuity growth
    USD 188.23-30.6%
    Exit multiple
    USD 286.20+5.5%
    Market price
    USD 271.22

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn5bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 23.4bnUSD 25.0bnUSD 26.7bnUSD 28.6bnUSD 30.5bn+6.8%
    EBITUSD 6.1bnUSD 6.5bnUSD 6.9bnUSD 7.4bnUSD 7.9bn+6.8%
    NOPATUSD 4.8bnUSD 5.1bnUSD 5.5bnUSD 5.8bnUSD 6.2bn+6.8%
    Add depreciation & amortisationUSD 672.7mUSD 718.4mUSD 767.4mUSD 819.6mUSD 875.4m+6.8%
    Less capital expenditureUSD -691.4mUSD -738.5mUSD -788.8mUSD -842.5mUSD -899.8m+6.8%
    Less increase in working capitalUSD -1.3bnUSD -1.3bnUSD -1.4bnUSD -1.5bnUSD -1.6bn+6.8%
    Free cashflow to firmUSD 3.5bnUSD 3.7bnUSD 4.0bnUSD 4.3bnUSD 4.6bn+6.8%
    Discount factor0.95500.87100.79430.72440.6607-
    Present valueUSD 3.4bnUSD 3.3bnUSD 3.2bnUSD 3.1bnUSD 3.0bn-2.6%
    Present Value Of The ForecastUSD 15.9bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.886Reported 0.830, pulled toward 1.0 (Blume)
    Cost of equity9.87%Risk-free + beta x equity risk premium
    Cost of debt6.41%Interest expense / average total debt
    Market capitalisationUSD 107.7bn95.3% of capital
    Total debtUSD 5.3bn4.7% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.65%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 188.23

    79% of EV

    Forecast FCFF, final year
    USD 4.6bn
    Capex at depreciation, working capital in reinvestment
    USD 6.7bn
    Less reinvestment at g/ROIC (5.4% of NOPAT)
    USD -358.3m
    Capitalised
    USD 6.3bn
    ROIC (reported)
    46.7%
    Terminal value, undiscounted
    USD 90.8bn
    Terminal value, discounted
    USD 60.0bn
    Enterprise value
    USD 75.9bn
    Less net debt
    USD 1.0bn
    Equity value
    USD 74.9bn

    Exit at 17.1x EBITDA

    Value per shareUSD 286.20

    86% of EV

    Terminal value, undiscounted
    USD 149.8bn
    Terminal value, discounted
    USD 99.0bn
    Enterprise value
    USD 114.9bn
    Less net debt
    USD 1.0bn
    Equity value
    USD 113.8bn

    Spread between methods: 41%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    7.65%232.18247.97266.79289.63317.96
    8.65%197.48208.39221.06235.95253.71
    9.65%171.39179.27188.23198.52210.47
    10.65%151.09156.96163.54170.97179.42
    11.65%134.86139.35144.32149.86156.06

    Outlined: this model. Green text: above today's price of 271.22. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year6.8%17.8%+11.0pp
    EBIT margin25.9%36.9%+11.0pp
    Discount rate9.6%7.6%-2.1pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.