Last update on 2024-06-05

A.O. Smith (AOS) - Piotroski F-Score Analysis for Year 2023 (Final Score: 8/9)

Explore the Piotroski F-Score Analysis of A.O. Smith (AOS) for 2023, scoring 8/9. Learn about its financial health, profitability, and investment potential.

Short Analysis - Piotroski Score: 8

We're running A.O. Smith (AOS) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score is used to evaluate a company's financial strength, using nine criteria focused on profitability, liquidity, and leverage. A.O. Smith (AOS) has an impressive Piotroski score of 8 out of 9, signaling strong financial health. A.O. Smith's net income has shown a consistent and strong positive trend, peaking at $556.6 million in 2023. The company's cash flow from operations is also positive at $670.3 million, highlighting operational efficiency. Return on Assets improved from 0.0693 in 2022 to 0.1701 in 2023, showing better use of assets to generate profit. Importantly, the operating cash flow surpasses net income, emphasizing profitability conversion to cash. On the liquidity side, the reduction in leverage from 0.1071 in 2022 to 0.0452 in 2023 signifies lower financial risk. The current ratio shows a strengthening liquidity position. The decrease in the number of outstanding shares from 154.8 million to 149.9 million indicates share buybacks. Operating efficiency is robust, with gross margins increasing from 0.3542 to 0.3854 and a higher asset turnover ratio from 1.103 to 1.1771 in 2023.

Insights for Value Investors Seeking Stable Income

Given A.O. Smith's high Piotroski F-Score of 8 and their strong financial indicators, it appears to be a fundamentally sound and potentially attractive investment. The consistent net income, robust cash flow from operations, reduced financial leverage, and positive trends in gross margins and asset turnover ratios all indicate a strong financial foundation. These factors suggest that A.O. Smith could be worth closer consideration for investment, especially for those seeking a financially stable and efficient company. However, as always, it's important to further evaluate market conditions and individual risk tolerance before making any investment decisions.

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

Profitability of A.O. Smith (AOS)

Company has a positive net income?

Net income is a company's total profit after all expenses and taxes. A positive net income indicates profitability; thus, its consideration is vital for assessing financial health.

For A.O. Smith, the net income for 2023 stands at $556.6 million, which is significantly positive. Over the past 20 years, the company's net income has generally shown a positive trend with only a few fluctuations, peaking in 2023. Specifically, net income ranged from $52.2 million in 2003 to the current $556.6 million in 2023, showcasing a strong growth trajectory. This positive net income is a good sign, indicating robust financial health and efficient management.

Company has a positive cash flow?

Cash Flow from Operations (CFO) indicates the amount of cash generated by a company's normal business operations. It is crucial to evaluate the company's ability to generate future cash flow.

A.O. Smith's (AOS) Cash Flow from Operations (CFO) for 2023 stands at $670.3 million, which is positive. This positive CFO is a clear indicator that the company is effectively generating cash from its core business activities. As per the Piotroski criteria, this translates to 1 point out of the possible 9 points. Over the last 20 years, A.O. Smith's CFO has generally shown a rising trend, strikingly spiking from $25.2 million in 2003 to the current $670.3 million in 2023. This robust and increasing CFO suggests strong operational health and a solid capacity to reinvest in the business, service debt, and return value to shareholders.

Return on Assets (ROA) are growing?

Return on Assets (ROA) is a measure of a company's profitability relative to its total assets.

A.O. Smith's ROA improved significantly from 0.0693 in 2022 to 0.1701 in 2023, adding 1 point. This indicates the company's assets are being utilized more efficiently to generate profit. Additionally, comparing with the industry median ROA's trends, A.O. Smith has made impressive gains even though it still underperforms the industry median (which was at 0.3492 in 2023). This upward trend is a positive signal.

Operating Cashflow are higher than Netincome?

Explain whether A.O. Smith's operating cash flow is higher than its net income and why it matters.

The operating cash flow of $670.3 million is higher than the net income of $556.6 million for 2023. This positive trend means that A.O. Smith is effectively converting its profitability into cash, indicating a robust operational efficiency. The historical data also shows consistent growth in operating cash flows, from $25.2 million in 2003 to $670.3 million in 2023, highlighting a similar trend in net income, from $52.2 million in 2003 to $556.6 million in 2023. This metric scores a point in the Piotroski Analysis.

Liquidity of A.O. Smith (AOS)

Leverage is declining?

Assess whether the company reduced or increased leverage and its potential Impact.

Comparing the leverage ratios of 0.1071 in 2022 and 0.0452 in 2023, we observe a significant reduction in A.O. Smith's financial leverage. Lower leverage is usually a positive indicator of decreased financial risk, as it means the firm relies less on borrowed funds. Historically, the leverage data reflects a fluctuating but overall declining trend over the past two decades. This reduction in leverage in 2023 aligns well with the company’s historical preference towards maintaining a low level of financial risk. The leverage decreased in 2023, thus awarding 1 point.

Current Ratio is growing?

Explain the criterion for A.O. Smith (AOS) and why it is important to consider

The current ratio compares a company's current assets to its current liabilities to measure its ability to pay short-term obligations. An upward trend indicates a strengthening liquidity position.

Number of shares not diluted?

Change in Shares Outstanding assesses how the number of shares issued by a company varies. It indicates share buyback policies, dilution from new issuance, or stock splits.

Comparing the figures for 2022 and 2023, A.O. Smith's outstanding shares have decreased from 154,786,327 in 2022 to 149,952,679 in 2023. This reduction can be an encouraging sign, reflecting potential share buybacks which may boost per-share metrics and return capital to shareholders. Historically, the company has varied significantly in its share count, with noticeable reductions since 2019, aligning with share buyback trends. Thus, for 2023, this criterion scores 1 point.

Operating of A.O. Smith (AOS)

Cross Margin is growing?

Gross Margin measures the proportion of revenue that exceeds a company's cost of goods sold. Higher margins indicate better profitability.

A.O. Smith's Gross Margin has indeed increased from 0.3542 in 2022 to 0.3854 in 2023, thus earning 1 point in this Piotroski criterion. This is a favorable indicator as an improvement in Gross Margin suggests more efficient management of production costs or successful pricing strategies. To put this into perspective, over the past 20 years, A.O. Smith's Gross Margin has seen significant fluctuations, peaking at 0.4167 in 2016 and dipping as low as 0.1803 in 2004. Compared to the industry median, A.O. Smith's current Gross Margin (0.3854) is also above the industry median of 0.3492 in 2023, reaffirming the company's relative strength in maintaining profitability margins in its sector.

Asset Turnover Ratio is growing?

Asset turnover measures a company's efficiency in using its assets to generate sales revenue.

The asset turnover improved from 1.103 in 2022 to 1.1771 in 2023, indicating a more efficient use of assets to generate revenue. This trend is positive and accrues a point under the Piotroski score. Historically, asset turnover ratios fluctuated over the last 20 years, reaching a low of 0.7422 in 2010 and gradually recovering. Therefore, an increasing ratio is a favorable sign.