Last update on 2024-06-06

American Electric Power (AEP) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Analyze the Piotroski F-Score of American Electric Power (AEP) in 2023, focusing on profitability, liquidity, and operational efficiency. Final Score: 5/9.

Short Analysis - Piotroski Score: 5

We're running American Electric Power (AEP) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score assesses the financial strength of American Electric Power (AEP) based on nine criteria: profitability, liquidity, and operating efficiency. With a Piotroski score of 5/9, AEP exhibits strengths and weaknesses. The company demonstrates strong net income and cash flow, with cash flow significantly exceeding net income, indicating strong cash generation capabilities. However, AEP shows weaknesses in decreasing return on assets, increasing leverage, low current ratio relative to industry, share dilution, and a declining asset turnover ratio.

Insights for Value Investors Seeking Stable Income

With a Piotroski F-Score of 5, AEP has a balanced financial position. While its strong cash flows and positive net income are promising, weaknesses such as increasing debt and asset inefficiencies are concerning. This stock may be worth considering if you are looking for stability and consistent cash generation, but there are areas that require monitoring, especially its debt level and asset use efficiency. Stay cautious and maybe look for additional confirmation in other financial metrics before deciding to invest.

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

Profitability of American Electric Power (AEP)

Company has a positive net income?

Net income is a company's total earnings and a critical indicator of financial health.

For American Electric Power (AEP), the net income for 2023 stands at $2,208,100,000, which is positive. Evaluating the trend over the last 20 years, AEP has predominantly reported positive net income, showing resilience and financial stability. Positive net income is foundational for reinvestment in business operations, paying dividends, and reducing debt – all critical for long-term viability. The consistency in generating positive earnings suggests sound operational proficiency and strategic execution. Hence, AEP scores 1 point for this criterion as its net income is positive.

Company has a positive cash flow?

The Cash Flow from Operations (CFO) assesses the cash inflow from regular business operations. It’s crucial in evaluating a company's short-term viability, particularly its ability to cover its debts, expenses, and dividends.

For 2023, American Electric Power (AEP) reported a Cash Flow from Operations (CFO) of $5,012,200,000, which is positive and thus earns 1 point under the Piotroski score. Reviewing the historical data over the last 20 years, the company has demonstrated a consistent trend of positive CFO, which underlines robust operational efficiency. Notably, 2023's CFO figure remains significant, aligning closely with the higher end of the 20-year range. In comparison to the all-time high in 2022 at $5,288,000,000, the 2023 CFO shows a slight decline but remains strong. In essence, this consistent performance can be seen as a positive indicator of AEP's operational strength and reliability to generate cash, emphasizing its solidity in covering short-term obligations and potentially financing growth initiatives organically.

Return on Assets (ROA) are growing?

Change in return on assets (ROA) reflects a company's ability to effectively convert its assets into earnings over a period.

The ROA for American Electric Power (AEP) decreased from 0.0255 in 2022 to 0.0232 in 2023, indicating that the company’s ability to generate profit from its assets has weakened slightly. This criterion gets 0 points as the ROA did not increase in 2023. It's important to note this minor dip in the context of a historically lower ROA compared to the industry median, which has consistently ranged between 0.3499 and 0.5944 over the last two decades. This underperformance relative to industry standards might signal the need for AEP to strategize on optimizing its asset utilization.

Operating Cashflow are higher than Netincome?

Operating Cash Flow (CFO) higher than Net Income is a positive indicator. It suggests that the company can generate sufficient cash from its operations to cover its net income, ensuring better financial health and solvency.

For American Electric Power (AEP) in 2023, the CFO is $5,012,200,000, significantly higher than the Net Income of $2,208,100,000. This results in a score of 1 point for this criterion. From an analytical perspective, this observation is promising. CFO being more than twice the Net Income indicates strong cash flows generated by core operating activities, a reassuring sign of AEP's ability to sustain its operations and fund future growth without excessive reliance on external financing. Additionally, analyzing the past 20 years also evidences a consistent positive cash flow trend, with only minor deviations, implying stability and robust financial footing over time.

Liquidity of American Electric Power (AEP)

Leverage is declining?

Change in Leverage observes if a company is reducing its debt relative to its equity, showcasing potential fiscal strength or risk depending on the trajectory.

The Leverage has increased from 0.3733 in 2022 to 0.3948 in 2023 for American Electric Power. This trend is considered negative as it indicates an increase in financial leverage, implying that AEP is relying more on debt to finance its assets, which can heighten financial risk, particularly in volatile economic conditions. The long-term data shows a gradual increase in leverage over the past several years, peaking in 2023. No point is assigned based on this criterion, reflecting a potentially riskier balance sheet that stakeholders should monitor closely.

Current Ratio is growing?

The Current Ratio is calculated as Current Assets divided by Current Liabilities. An increase suggests improved liquidity.

The Current Ratio for American Electric Power (AEP) has indeed increased to 0.5251 in 2023 from 0.5107 in 2022. This incremental rise of 2.82% in the Current Ratio is a positive trend for AEP, indicating a marginally better liquidity position compared to the previous year. However, it should be noted that AEP's Current Ratio remains significantly below the industry median of 0.7878 in 2023. Over the past 20 years, AEP has consistently had a lower Current Ratio compared to the industry median, which might suggest long-standing issues regarding short-term asset management or potentially a structural choice within the company’s financial strategy. Thus, while this annual increase is good, AEP still trails behind industry standards.

Number of shares not diluted?

Evaluation of shares outstanding for AEP helps to assess the dilution risk for shareholders, as a decreasing number of shares denotes less dilution.

American Electric Power's (AEP) outstanding shares increased from 511,841,946 in 2022 to 518,903,682 in 2023, which denotes an increase. Hence, according to the Piotroski F-Score criterion, AEP would not receive a point for this criterion since the shares outstanding has increased, reflecting potential dilution. Over the past 20 years, AEP has seen a general trend of increasing outstanding shares, starting from 385,000,000 shares in 2003 to the current figure in 2023. This long-term trend highlights a pattern of issuing shares likely for financing needs, which investors may take note of when considering long-term shareholder value.

Operating of American Electric Power (AEP)

Cross Margin is growing?

Gross margin is a crucial indicator of a company's financial health, representing the percentage of revenue that exceeds the cost of goods sold. It is pivotal for assessing profitability and operational efficiency.

In 2023, American Electric Power (AEP) saw a gross margin of 0.5862, compared to 0.575 in 2022. This increase, although marginal, indicates better control over production costs relative to sales. Looking at a 20-year trend, AEP has generally performed better than the industry median, whose gross margin was 0.4109 in 2023. The consistent outperformance is a strong indicator of the company's robustness and managerial competency in maintaining superior cost structures. The increased gross margin in 2023 awards AEP 1 point in Piotroski analysis, reaffirming positive operational efficiency.

Asset Turnover Ratio is growing?

Asset turnover measures the efficiency of a company’s use of its assets in generating sales revenue. A higher asset turnover ratio indicates greater efficiency.

Based on the provided figures, American Electric Power's (AEP) asset turnover ratio has decreased from 0.2169 in 2022 to 0.1997 in 2023. This decline indicates a reduction in the company's efficiency in utilizing its assets to generate revenue. Historically, AEP's asset turnover ratio has fluctuated, peaking at 0.4069 in 2003 and gradually diminishing over the years. The given trend highlights a continuing challenge for AEP in maintaining asset efficiency. Therefore, for the Piotroski Analysis, we would assign 0 points as the asset turnover has not increased.