Here's Why Investors Must Hold ADP Stock in Their Portfolios Now

ADP ADP stock has risen 26.4% over the past six months, beating the industry and the Zacks S&P 500 Composite's returns of 11.3% and 13.8%, respectively. 6-Month Share Price Performance Image Source: Zacks Investment Research TheZacks Consensus Estimate for ADP's fiscal 2027 revenues is set at $23.3 billion, implying 6% year-over-year growth. For fiscal 2028, the consensus estimate is $24.6 billion, suggesting a 5.6% uptick from the preceding year's actual. For EPS, the consensus mark for fiscal 2027 is pegged at $12.26, indicating 10.3% year-over-year growth. The Zacks Consensus Estimate for fiscal 2028 EPS is pegged at $13.4, suggesting 9.3% growth. Factors That Augur Well for ADP's Success Solid Bookings & High Retention: ADP's new Employer Services (ES) bookings for fiscal 2026 exceeded $2.2 billion, marking 6% year-over-year growth. The company ended the fourth quarter of fiscal 2026 on a stronger note, supported by the Small Business portfolio, Employer Services HR outsourcing, and the enterprise and international businesses. Contributions from Lyric, the WorkForce Suite and global payroll offerings acted as vital driving forces, supported by high seller productivity achieved through AI-driven tools like The Zone. ES retention came in strong at 92.1% for fiscal 2026, beating the company's expectations and touching the guidance roof. AI investments improved accuracy, directly supporting client retention. High ES bookings, supported by a solid retention rate, create a strong revenue pipeline, limiting churn. AI-Fueled Margin Expansion: During the fourth-quarter fiscal 2026 earnings release, CFO Peter Hadley mentioned that the company is pleased with the productivity gains realized following the AI implementation in service tools and product innovation. The operational productivity gained through these investments was one of the cornerstones in driving a year-over-year expansion of 60 basis points (bps) in ES margins for fiscal 2026. We expect margins to expand as AI continues to raise ADP's operational prowess, which is in line with management expecting an adjusted EBIT margin expansion of 70-90 bps for fiscal 2027. Shareholder-Friendly Actions: ADP has maintained a consistent record of returning capital to shareholders through dividends and repurchases. In fiscal 2024, the company paid out dividends of $2.18 billion, which rose to $2.4 billion and $2.63 billion in fiscal 2025 and fiscal 2026, respectively. The company also repurchased $2.08 billion in shares in fiscal 2026. These distributions were supported by $5.4 billion in operating cash flow, reinforcing the durability of its capital-return capacity. Such actions not only attract income-seeking investors but also raise investors' morale by enhancing the bottom line. Risks Faced by ADP Bleak Employment Growth Limits Revenues: In fiscal 2026, U.S. pay per control increased 1%. Management anticipates the growth rate to be flat to 1% for fiscal 2027. We expect these modest employment-growth expectations to limit the upside in employee-linked revenues, mainly in mid-market and enterprise ES. PEO Margin Weakness: ADP's PEO margins dipped 100 bps in the fourth quarter of fiscal 2026 due to faster growth in zero-margin pass-through revenues and higher workers' compensation and selling expenses. Management expects PEO margins to contract further in fiscal 2027, with zero-margin pass-throughs rising faster than overall PEO revenues. Therefore, continued PEO margin pressure could offset margin gains partially elsewhere in the business. Expected Retention Drag: For fiscal 2027, management expects a 10-30-bps drag in ES retention from its unchanged 92.1% in fiscal 2026. Management's expectation is grounded in assuming a small pullback in retention based on the near-record levels that the company operates at across its business and potential out-of-business rates to increase in the down market. If retention falls as expected, then it could affect the revenue pipeline created by the company's solid bookings. ADP's Zacks Rank & Stocks to Consider The company currently has a Zacks Rank of #3 (Hold). Some better-ranked stocks from the broader Zacks Computer and Technology sector are Arista Networks ANET and Amkor Technology AMKR, each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here. Arista Networks has a long-term earnings growth expectation of 22.7%. ANET delivered a trailing four-quarter earnings surprise of 8.9%, on average. Amkor Technology has a long-term earnings growth expectation of 31.2%. AMKR delivered a trailing four-quarter earnings surprise of 43.6%, on average. 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