Automatic Data Processing (NASDAQ: ADP) reported fourth-quarter fiscal 2026 results on Wednesday, delivering adjusted earnings per share of $2.64 and revenue of $5.47 billion, both surpassing analyst consensus estimates of $2.60 and $5.44 billion respectively. The human resources management software company saw its shares surge 6.13% to $280.37 following the announcement, driven by strong operational execution and expanding margins.

Revenue increased 7% year-over-year to $5.47 billion, reflecting broad-based demand across its segments. Adjusted EBIT rose 13% to $1.4 billion, with the margin expanding by 140 basis points to 25.1%. Net earnings grew 7% to $1 billion. The company generated $1.43 billion in operating cash flow during the quarter and held $4.23 billion in cash and equivalents as of June 30.

Segment Performance

Growth was consistent across ADP’s primary business units. Employer Services revenues increased 7% to $3.7 billion, while PEO Services revenues also rose 7% to $1.8 billion. A significant contributor to profitability was interest income; interest on funds held for clients increased 15% to $355 million. This was supported by an 8% increase in average client funds balances to $41 billion and a 20 basis point rise in the average interest yield on client funds to 3.5%.

What the Numbers Show

The divergence between top-line and bottom-line growth highlights improved operating leverage. While revenue grew by 7%, adjusted EBIT expanded by 13%, pushing margins higher. This indicates that ADP is effectively converting incremental revenue into profit, aided by efficiency gains and favorable interest income dynamics. The simultaneous beat in both EPS and revenue suggests robust pricing power and cost management.

AI and Strategic Outlook

CEO Maria Black highlighted that AI is reshaping work at the task level rather than eliminating jobs, increasing the need for trusted payroll and compliance support. ADP Assist, the company’s AI-enabled productivity tool, has expanded across payroll, benefits, HR, and compliance, now available to nearly all of ADP’s more than 1.1 million clients. Additionally, Lyric HCM live clients are up 94% from a year ago, with its pipeline up 50%.

Employer Services retention remained strong at 92.1%. Black noted broad-based bookings growth across small business, HR outsourcing, enterprise, and international businesses. The company recently integrated its Workforce Software acquisition as Workforce Suite and remains open to strategic acquisitions. ADP also highlighted a research partnership with the Stanford Digital Economy Lab to study AI’s impact on work using payroll data.

Fiscal 2027 Guidance

Looking ahead, ADP expects full-year fiscal 2027 revenue growth of 5%-6%, translating to a range of $23.044 billion to $23.264 billion, compared to the analyst consensus estimate of $23.190 billion. The company projects adjusted diluted EPS growth of 9%-11%, resulting in a range of $12.12 to $12.34, versus the consensus estimate of $12.20. Management cited stronger bookings, high retention, and global HCM demand as key drivers for continued growth.

UBS analyst Kevin Mcveigh has maintained a Neutral rating on Automatic Data Processing (NASDAQ: ADP) while adjusting the stock's price target. The firm increased the target to $270, up from the previous level of $260.

Rating and Price Action

The research note reaffirms the Neutral stance on the shares. The revision to the price target reflects an updated valuation view by the brokerage.