AUTOMATIC DATA PROCESSING INC

Dominant, highly profitable payroll/HCM franchise with elite returns, durable recurring revenue, and no client concentration.

Strengths

• Elite returns and profitability — ROE 65.9% (87th), net margin 19.8% (86th)
• Durable recurring revenue, no concentration — 10-K: >1.1M clients, no single client over 2% of revenue; long-term contracts
• Steady growth and strong operating cash flow — revenue +7.1%, net income +8.7%, OCF margin 24.0%

Risks

• Tight headline liquidity — current ratio 1.05 — structurally normal given client-fund balances, but leaves little cushion
• Moderate leverage — D/E 0.64 (71st)
• Macro-sensitive to employment levels and interest on client funds — qualitative (per 10-K)

Notable findings

• High convictionHigh conviction — notable institutional holders, insider buying, and a strong balance sheet
• Customer concentration~92% of revenue from one customer/distributor — Additionally, our ES new business bookings grew 3% in fiscal 2025, and ES client revenue retention was 92
• Fund exitedNotable fund(s) exited this quarter: VANGUARD GROUP INC, Bridgewater Associates, LP
• Strong balance sheetStrong balance sheet — $7.8B cash & investments
• Insider buyingInsider buying — 1 open-market buy(s) by 1 insider(s) (~$745,695, last 6mo) Form 4 ↗
• Insider sellingInsider selling — 15 open-market sale(s) by 5 insider(s) (cluster of 5 insiders, ~$2M, last 6mo) Form 4 ↗
• Notable holderHeld by 5 notable fund(s): STATE STREET CORP, GOLDMAN SACHS GROUP INC, FMR LLC +2 more (as of 2026-03-31)