Last update on 2024-06-06

American Water Works (AWK) - Piotroski F-Score Analysis for Year 2023 (Final Score: 8/9)

Piotroski F-Score analysis for American Water Works (AWK) in 2023 shows a strong financial position with a score of 8/9 highlighting profitability and liquidity.

Short Analysis - Piotroski Score: 8

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

American Water Works (AWK) underwent a Piotroski F-Score evaluation, yielding a strong score of 8 out of 9. The company demonstrated positive outcomes in several key areas: it reported a positive net income of $944 million in 2023, a positive cash flow from operations of $1.874 billion, an increased Return on Assets (ROA) to 0.0325, and an operating cash flow higher than its net income. These profitability metrics indicate that AWK is doing well in generating and sustaining its financial performance. On the liquidity front, AWK showed improvements as well—a reduction in leverage to 0.3891 and an increase in the current ratio to 0.6457 suggest that the company's financial stability and ability to meet short-term obligations are improving, albeit still lagging behind industry medians. Despite this, the share count increased to 193 million, which did not add to the positive score due to potential dilution effects. Lastly, growth in gross margin and asset turnover signify better operational efficiency, with both metrics reflecting upward trends for 2023.

Insights for Value Investors Seeking Stable Income

Based on the strong Piotroski F-Score of 8, American Water Works (AWK) presents itself as a robust investment option with key strengths in profitability and improving financial health. However, potential investors should consider the slight underperformance in the current ratio compared to industry standards and the impact of the increased share count. Overall, this analysis encourages a deeper look into AWK's strategy and market position, as its positive profitability and liquidity trends make it a viable candidate for further evaluation and potentially a worthy addition to an 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 American Water Works (AWK)

Company has a positive net income?

This criterion examines whether the company's net income for the fiscal year is positive, indicating profitability.

In 2023, American Water Works reported a net income of $944 million, which is positive. Evaluating the last 20 years, we observe a significant turnaround from negative net incomes in the early 2000s to generally positive figures from 2010 onwards. This transition underscores the company's growing profitability and stability, making this a favorable trend. The net income results for 2023 affirm the continuing positive growth, adding 1 point to the Piotroski score.

Company has a positive cash flow?

One of the key criteria in the Piotroski analysis is assessing the cash flow from operations (CFO). A positive CFO is crucial because it reflects a company's ability to generate sufficient cash to maintain and grow its operations.

For 2023, American Water Works (AWK) reported a positive cash flow from operations (CFO) amounting to $1.874 billion. This positive cash flow indicates that AWK is generating sufficient cash through its core business operations. Reviewing the historical CFO data over the last 20 years, AWK shows a strong trend of increasingly positive cash flows. For instance, the CFO in 2005 was approximately $525.4 million and has risen significantly in recent years, peaking notably in 2023. This positive trend is a good indicator of AWK's operational efficiency and financial health, scoring 1 point for this criterion in the Piotroski analysis.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) measures the efficiency of a company's management in generating profits from its assets. A rising ROA indicates improving efficiency in asset utilization.

Comparing the ROA of 0.0325 in 2023 to 0.0304 in 2022 for American Water Works (AWK), we observe an increase, warranting an addition of 1 point based on the Piotroski criteria. This positive trend illustrates an enhancement in how effectively AWK utilizes its assets to generate profits. Over the past 20 years, American Water Works has consistently maintained its ROA, although it lags significantly behind the industry median. Despite the increment in 2023, AWK's ROA still trails the industry median of 0.5512 for the same year, which may reflect potential inefficiencies or structural differences unique to the company's operational model. Nevertheless, the increase from 2022 to 2023 shows progress.

Operating Cashflow are higher than Netincome?

The Operating Cash Flow to Net Income criterion analyzes if a company's operating cash flow exceeds its net income. A higher operating cash flow can indicate high-quality earnings, because it suggests that the company generates enough cash from its core operations to cover its net income. This is important as it shows the company's ability to generate cash sustainably from operations, rather than relying on non-cash items.

In 2023, American Water Works had an Operating Cash Flow of $1.874 billion and a Net Income of $944 million. The Operating Cash Flow is indeed higher than the Net Income, thus earning a point in this criterion. Historically observing the values, from 2005 to 2023, Operating Cash Flow consistently increased and has outpaced Net Income several times, especially since 2010. This shows a robust performance in generating cash from core operations, reflecting positively on the company's financial health. This trend is favorable as it assures investors about the quality and sustainability of earnings.

Liquidity of American Water Works (AWK)

Leverage is declining?

Change in leverage examines whether a company's leverage ratio has decreased compared to the previous year, indicating improved financial health.

Leverage for American Water Works changed from 0.3957 in 2022 to 0.3891 in 2023. Thus, leverage decreased, scoring 1 point. This decline in leverage is positive as it indicates a reduction in the company's debt levels, reflecting better financial stability. Historically, AWK’s leverage has fluctuated, but the current trend mirrors tight fiscal management.

Current Ratio is growing?

The current ratio is a liquidity ratio that shows the proportion of a company's current assets to its current liabilities, reflecting its ability to cover short-term obligations.

The Current Ratio for American Water Works (AWK) has increased from 0.4447 in 2022 to 0.6457 in 2023, a positive change that adds 1 point to the Piotroski Score. This increase in the current ratio indicates improved liquidity, suggesting the company is better positioned to meet its short-term liabilities. Despite this improvement, it remains below the industry median of 1.1226 in 2023, highlighting a potential area for further enhancement.

Number of shares not diluted?

This criterion evaluates whether a company is issuing more shares. A reduction in shares outstanding can signal strong management confidence.

In 2023, American Water Works (AWK) had 193,000,000 outstanding shares compared to 182,000,000 in 2022, indicating an increase. This results in 0 points for this criterion. Over the last 20 years, AWK's shares have fluctuated, with notable variations such as a high of 188,976,744 in 2005 and a recent low of 159,967,000 in 2008. The increase in shares in 2023 could be due to various company actions or initiatives to raise capital, which may have different implications depending on the context. Generally, an increase in shares outstanding without corresponding revenue or profit increases can dilute shareholder value.

Operating of American Water Works (AWK)

Cross Margin is growing?

Gross margin represents the percentage of revenue that exceeds the cost of goods sold. It is a key indicator of a company's financial health and profitability.

In 2023, American Water Works (AWK) reported a gross margin of 0.5938 compared to 0.581 in 2022. This increase indicates enhanced operational efficiency or improved revenue streams relative to costs, adding 1 point to the Piotroski score. Historically, the gross margin has been stable and notably above the industry median, suggesting robust performance despite recent variabilities.

Asset Turnover Ratio is growing?

Asset Turnover measures a company's efficiency in generating sales from its assets.

The Asset Turnover ratio for American Water Works (AWK) has increased from 0.1408 in 2022 to 0.1458 in 2023, reflecting a positive trend. This metric indicates that AWK has become slightly more efficient in using its assets to generate sales. Looking at the historical data, we notice a general decline in asset turnover since 2005, from 0.17 in 2006 to 0.1458 in 2023. Therefore, the slight improvement in 2023 is encouraging, contributing 1 point to the Piotroski score. This uptick suggests better operational efficiency, which is essential for sustaining profitability.