Last update on 2024-06-06

Quest Diagnostics (DGX) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Explore the Piotroski F-Score Analysis for Quest Diagnostics (DGX) in 2023. Learn how DGX performed on key financial criteria for a Final Score of 5/9.

Short Analysis - Piotroski Score: 5

We're running Quest Diagnostics (DGX) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score measures the strength of a company's financial position out of 9 points. Quest Diagnostics (DGX) received a score of 5, indicating an average financial health. The company's profitability is positive, with consistent net income and positive operating cash flow, though its return on assets is declining. The company's liquidity is slightly improving, but leverage has slightly increased. On the operational side, while the current ratio and share repurchase trends are positive, gross margin and asset turnover have decreased. In summary, DGX shows strengths in profitability and some aspects of liquidity, but there are concerns about operational efficiency and increasing leverage.

Insights for Value Investors Seeking Stable Income

Given the mixed Piotroski F-Score of 5, Quest Diagnostics (DGX) presents both opportunities and risks. It's a profitable company with improving liquidity and confidence shown by share repurchases. However, declining ROA, gross margin, and asset turnover are potential red flags. Investors might want to watch out for these issues and perhaps wait for signs of operational improvement before investing. If you prefer safer investments or are uncomfortable with financial risks, you might want to consider other stocks with higher scores showing stronger financial and operational health.

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

Profitability of Quest Diagnostics (DGX)

Company has a positive net income?

The criterion examines whether the company's net income is positive, indicating profitability.

Quest Diagnostics (DGX) has reported a net income of $854 million in 2023. This indicates that the company is profitable. Historically, the company has consistently reported positive net income over the last 20 years, with the lowest being approximately $340 million in 2007, and the highest around $1.995 billion in 2021. Given the positive net income for 2023, the company meets the criterion for profitability and earns 1 point based on this analysis. The consistency in net income over the years also underscores robust financial health, though the recent income shows a decline from the peak in 2021.

Company has a positive cash flow?

Operating cash flow indicates a company's ability to generate sufficient positive cash flow to maintain and grow its operations.

Quest Diagnostics (DGX) has exhibited consistently positive operating cash flow over the past 20 years, showcasing its stable operational efficiency and robust cash generation capabilities. In 2023, the operating cash flow amounted to $1.272 billion, contributing positively toward the Piotroski F-Score with a tally of 1 point for this criterion. Despite fluctuations such as the dip in 2013, the overall trend depicts a strong upward trajectory in cash flows, reaffirming the firm's strong financial health and operational strategy. Thus, the positive 2023 operating cash flow is a positive indicator for stakeholders.

Return on Assets (ROA) are growing?

ROA or Return on Assets measures a company's profitability relative to its total assets. It provides insights into how efficiently a company is using its assets to generate earnings.

In 2023, Quest Diagnostics (DGX) reported an ROA of 0.0636, a decline from 0.0715 in 2022. This indicates a downturn in asset efficiency. Over the last 20 years, DGX's ROA has showed fluctuating trends but typically remains below the industry median, which was 0.504 in 2023. Given these figures, the Piotroski criterion is not met. DGX receives a 0 for this metric. This signifies a potential red flag for investors, raising concerns about operational efficiency compared to industry standards.

Operating Cashflow are higher than Netincome?

Explain the criterion for Quest Diagnostics (DGX) and why it is important to consider

This consideration falls under the category of the Piotroski F-Score, a renowned stock selection criterion developed by accounting professor Joseph Piotroski. A score is given based on various financial metrics to evaluate the financial strength of a company. One such metric is whether the operating cash flow is higher than net income. This comparison is essential because it signifies that the company is generating more cash from its actual operations than what it is reporting as net income, pointing towards higher quality earnings and potentially lower earnings manipulation.

Liquidity of Quest Diagnostics (DGX)

Leverage is declining?

Change in leverage refers to how the company's use of debt relative to its equity has changed over a period. A decrease in leverage is typically seen as a positive indicator as it suggests reduced financial risk.

For Quest Diagnostics (DGX), the leverage ratio increased slightly from 0.348 in 2022 to 0.3504 in 2023, indicating a minor increment in the financial risk. This trend does not earn a point under the Piotroski criteria. Over the past 20 years, the company's leverage has exhibited fluctuations, with significant peaks and troughs, but the very slight increase from 2022 to 2023 denotes a heightened reliance on debt.

Current Ratio is growing?

The Current Ratio measures a company's ability to pay short-term obligations with its short-term assets. It reflects financial health and liquidity.

In 2023, Quest Diagnostics (DGX) recorded a Current Ratio of 1.3069, compared to 1.2237 in 2022. This increase suggests improved liquidity and financial health. The 2023 Current Ratio represents an upward trend and adds 1 point to the Piotroski score. Historically, the highest Current Ratio for DGX over the past 20 years was 1.7218 in 2020, while the industry median fluctuates around 2.3682 in 2023. Although DGX's ratio remains below the industry median, the rising trend is a positive indicator.

Number of shares not diluted?

A reduction in shares outstanding can indicate management’s confidence in the company’s value by repurchasing shares, which is favorable to investors.

Comparing the outstanding shares from 2022 to 2023, Quest Diagnostics has successfully reduced its shares from 116,000,000 to 112,000,000. In the last 20 years, the company has generally decreased its outstanding shares, indicating a long-term commitment to enhancing shareholder value. This constancy in share repurchase strengthens the value proposition for investors, showing a positive trend. Therefore, Quest Diagnostics deserves 1 point for this criterion, showcasing prudent and confident financial management.

Operating of Quest Diagnostics (DGX)

Cross Margin is growing?

Gross margin is a measure of a company's operational efficiency and profitability, reflecting the proportion of revenue that exceeds the cost of goods sold (COGS). A higher gross margin indicates better efficiency and profitability, important for long-term stability.

In 2023, Quest Diagnostics (DGX) reported a gross margin of 0.33, a decrease from 0.3474 in 2022. Historically, the gross margin has fluctuated, peaking at 0.4203 in 2009 and showing a noticeable decline over the past 20 years. The industry median gross margin stands at 0.504 recently, which is higher than DGX's figures. The decreasing gross margin trend is concerning as it indicates declining operational efficiency and profitability. Thus, this criterion scores 0 points as the margin did not increase.

Asset Turnover Ratio is growing?

Asset Turnover compares sales to total assets, indicating efficiency.

Comparing Asset Turnover in 2022 (0.7474) and 2023 (0.6889) reveals a decrease, indicating less efficient asset utilization. Over 20 years, DGX has seen a declining trend, emphasising the need for concern and strategic adjustment.