Last update on 2024-06-06

Analog Devices (ADI) - Piotroski F-Score Analysis for Year 2023 (Final Score: 8/9)

Analyze Analog Devices (ADI) in 2023 using the Piotroski F-Score, highlighting its score of 8/9, financial strength, profitability, and operational efficiency.

Short Analysis - Piotroski Score: 8

We're running Analog Devices (ADI) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Analog Devices (ADI) shines with a Piotroski F-Score of 8 out of 9, suggesting it is a strong financial candidate. ADI presents key strengths in profitability, as seen by consistent positive net income and an increasing Return on Assets (ROA). Liquidity indicators reveal consistent positive cash flows over two decades, but a declining current ratio might signal potential short-term liquidity strains. Nevertheless, reduced leverage and share buybacks convey financial stability. Ultimately, prospering trends in gross margin and asset turnover ratify ADI's operational efficiency despite some room for further optimization.

Insights for Value Investors Seeking Stable Income

Given ADI's high Piotroski F-Score and underlying strengths in profitability, liquidity, and operation, it is worth considering as a viable investment. The company's historical consistency in positive cash flows and the recent uptrend in ROA and gross margin bolster this perspective. However, investors should remain cautious about recent declines in the current ratio and closely monitor liquidity. Overall, ADI shows promise, making it a good candidate for further research and consideration in one's investment portfolio.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Analog Devices (ADI)

Company has a positive net income?

The Piotroski F-score evaluates the financial strength of a company using several criteria, including profitability. Assessing net income is crucial.

Analog Devices (ADI) reported a net income of $3,314,579,000 in 2023, which is indeed positive, earning the company 1 point in this Piotroski criterion. The historical trend reveals a progressive increase, particularly from 2019 onwards, where net income doubled by 2021 and continued to grow to 2023. This positive trend in net income signifies strong profitability and operational efficiency, contributing to investor confidence and signaling robust financial health.

Company has a positive cash flow?

Cash Flow from Operations (CFO): Checks if the company's CFO is positive or negative, which is essential for understanding the liquidity and operational efficiency of the business.

Analog Devices (ADI) reported a cash flow from operations (CFO) of $4,817,634,000 in 2023. This is a positive value and thus earns a point in Piotroski's analysis. This indicates excellent liquidity and robust operational performance. Historically, ADI has had positive CFO for the past 20 years, showing a steady capacity to generate cash from its business operations. This consistent positive cash flow signifies strong operational health and reliability in covering corporate expenses and supporting growth initiatives.

Return on Assets (ROA) are growing?

The change in Return on Assets (ROA) evaluates a company's profitability relative to its total assets, indicating efficiency in using assets to generate earnings. An increase generally signifies improved performance.

Analog Devices (ADI) experienced an increase in ROA from 0.0536 in 2022 to 0.0669 in 2023. This rise signifies enhanced efficiency in converting asset investments into profitable returns. Historical data points out that ADI's operating cash flow has substantially grown over the past two decades, from $432.96 million in 2003 to $4.82 billion in 2023. However, when compared to the industry median ROA, which stands at 0.4919 in 2023, ADI's ROA still falls short. Despite the increase being a positive indicator, ADI remains below the industry benchmark. Hence, this trend is good concerning year-over-year performance but indicates room for improvement when juxtaposed with industry peers.

Operating Cashflow are higher than Netincome?

Operating Cash Flow analysis indicates ADI's ability to generate cash from its core activities, which should ideally be higher than its Net Income for financial health.

For 2023, Analog Devices has an Operating Cash Flow of $4,817,634,000 compared to a Net Income of $3,314,579,000. This is favorable as the Operating Cash Flow exceeds the Net Income by $1,503,055,000. This positive trend suggests a robust cash-generating capability that ensures the company can meet its short-term obligations, invest in growth opportunities, and provides a cushion against economic downturns. Looking at the historical data, ADI has consistently maintained an Operating Cash Flow higher than Net Income, with few exceptions, showing a trend of strong operational efficiency.

Liquidity of Analog Devices (ADI)

Leverage is declining?

Change in leverage measures the variation in a company's leverage ratio year-over-year and helps gauge its financial risk.

Reviewing the leverage of Analog Devices (ADI) over the last two reported years, we observe a change from 0.1302 in 2022 to 0.121 in 2023. Despite the relatively small movement, leverage decreased in 2023, thereby earning a score of 1 point for the Piotroski criteria. This lower leverage ratio is favorable as it signifies a reduction in financial risk, allowing greater flexibility for the company in handling obligations and investing in growth opportunities. Historically, ADI’s leverage fluctuated significantly, peaking at 0.3572 in 2017 and gradually settling at the current level, indicating a trend towards a more stable financial structure. Hence, based on decreasing leverage, ADI demonstrates improved financial prudence which is viewed positively in the context of the Piotroski Analysis framework.

Current Ratio is growing?

The current ratio measures a company's ability to pay off its short-term liabilities with its short-term assets. It is a critical indicator of liquidity and financial health.

Analog Devices (ADI) has witnessed a decrease in its current ratio from 2.0216 in 2022 to 1.3696 in 2023. This decline suggests that the company's liquidity has worsened over the past year, making it less capable of covering its short-term obligations with its short-term assets. Historically, ADI's current ratio has shown significant fluctuations. For instance, in 2022, the current ratio was relatively close to the industry median of 2.8342, indicating a healthy liquidity position. However, the current ratio of 1.3696 in 2023 falls below the industry median of 3.4213 for the same year, reflecting a worrisome trend compared to its peers. This drop calls for a closer examination of ADI's short-term assets and liabilities, as a current ratio below 1.5 often signals potential liquidity issues.

Number of shares not diluted?

Change in shares outstanding indicates whether a company is issuing new equity, repurchasing shares, or neither.

The outstanding shares of Analog Devices (ADI) decreased from 519,226,000 in 2022 to 502,232,000 in 2023. This reduction of approximately 3.27% in outstanding shares is a positive indicator under the Piotroski F-Score framework, earning a full 1 point for this criterion. This decrease signals share buybacks or the company reducing its equity base, often seen positively as it indicates confidence in the company's own financial stability and the returning of value to shareholders.

Operating of Analog Devices (ADI)

Cross Margin is growing?

Examining the gross margin trend from 2022 to 2023 for Analog Devices (ADI) is crucial in evaluating the company's profitability and cost management.

The gross margin for Analog Devices (ADI) has increased from 0.627 in 2022 to 0.6401 in 2023, warranting a score of 1 point for this Piotroski criterion. This upward trend reflects improved cost efficiency and profitability. Looking at the 20-year historical data, ADI's gross margin has generally remained higher than the industry median, indicating strong operational management. The industry's median gross margin in 2023 is 0.4919, significantly lower than ADI's, highlighting ADI's superior margin control.

Asset Turnover Ratio is growing?

Asset Turnover measures a company's efficiency in using its assets to generate sales. A higher ratio indicates better performance.

By comparing the Asset Turnover ratios of 0.2484 in 2023 to 0.2341 in 2022, it is evident that Analog Devices' asset utilization improved. This increase in Asset Turnover from 0.2341 to 0.2484 adds 1 point to the Piotroski score, indicating a positive trend. Analyzing the historical data, Analog Devices' Asset Turnover was significantly higher in the early 2000s, peaking at 0.852 in 2008. Although the current figure is an improvement over the previous year, it still lags far behind past performance. From 2012 onwards, the trend has been a decline, reaching a low of 0.1984 in 2021 before modest gains in 2022 and 2023. Therefore, while the current trend is positive, the company has yet to fully recover its historical asset utilization levels.