Last update on 2024-06-06

Diamondback Energy (FANG) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Explore the 2023 Piotroski F-Score analysis for Diamondback Energy (FANG). Discover insights on profitability, liquidity, leverage, and overall financial position.

Short Analysis - Piotroski Score: 4

We're running Diamondback Energy (FANG) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score helps investors find strong, undervalued stocks by using nine criteria focused on profitability, liquidity, and efficiency. Diamondback Energy (FANG) has a Piotroski Score of 4 out of 9 for 2023, suggesting a moderate financial situation. Key points include: positive net income and cash flow, but a decline in return on assets and gross margin, and increasing share dilution. The company's current ratio also decreased.

Insights for Value Investors Seeking Stable Income

With a Piotroski Score of 4, FANG shows some strengths, especially in profitability and operational cash flow. However, the mixed results, especially declining efficiency, and growing shares, suggest that you should be cautious. It might be worth considering if you believe in the company's potential for improvement and long-term growth in the oil and gas sector. Further research on industry trends and company strategies is recommended.

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

Profitability of Diamondback Energy (FANG)

Company has a positive net income?

Analyzing whether Diamondback Energy's net income is positive or negative is crucial as it indicates the company's profitability. A positive net income suggests the company is generating more revenue than expenses, whereas a negative indicates a loss.

The net income for Diamondback Energy (FANG) in 2023 stands at $3,143,000,000, which is positive. Thus, in terms of Piotroski analysis, this would add 1 point to the overall score. Historical data over the past 20 years shows a fluctuation in net income values, with significant losses particularly in years like 2015 and 2020, which were likely influenced by industry downturns and external financial pressures. Nonetheless, the positive inertia from net income in recent years, including remarkable figures like $3,143,000,000 in 2023 and $4,386,000,000 in 2022, underscores a trend toward consistent profitability and financial health over the past few years.

Company has a positive cash flow?

This criterion examines whether Diamondback Energy’s cash flow from operations for 2023 is positive or negative, which is crucial for understanding the company's ability to generate cash from its core business activities.

Diamondback Energy's Cash Flow from Operations (CFO) in 2023 stands at $5.92 billion, which is positive. This metric is worthwhile noting because it highlights the strength and efficiency of the company's core operations, given that a positive CFO indicates that the company is generating sufficient cash to sustain its operating expenses and potentially invest in growth initiatives. Over the last 15 years, Diamondback Energy has displayed a consistent upward trajectory in CFO, especially notable since 2018 where CFO climbed from $1.56 billion to a peak of $6.32 billion in 2022. This long-term positive trend enhances the company's financial stability and diminishes reliance on external financing, thus adding a point for this Piotroski criterion.

Return on Assets (ROA) are growing?

The Change in Return on Assets (ROA) criterion evaluates the company's ability to generate earnings from its assets compared to the previous year. Positive ROA growth indicates improved efficiency in using assets to generate profits, thus reflecting positively on management's effectiveness.

In 2023, Diamondback Energy (FANG) reported a ROA of 0.1139, which is a decrease compared to 0.1786 in 2022. This implies a less efficient use of assets in generating earnings as compared to the previous year, warranting a score of 0 under the Piotroski Analysis framework for this particular criterion. Historically, the company's operating cash flow has experienced significant growth, as evidenced by an increase from $2,701,566 in 2009 to $5,920,000,000 in 2023. However, the recent declining trend in ROA suggests potential concerns in sustaining profitability levels, particularly when contrasted with the industry median, which, although fluctuating, has been generally higher than Diamondback's ROA.

Operating Cashflow are higher than Netincome?

Operating Cash Flow being higher than Net Income is crucial because it indicates that the company's core business operations are generating enough cash to cover net earnings.

With Diamondback Energy reporting an Operating Cash Flow of $5.92 billion and a Net Income of $3.143 billion in 2023, it is evident that the operating cash flow is substantially higher than net income. This trend is favorable, earning it 1 point in the Piotroski score. Looking at the historical data, the company's Operating Cash Flow has consistently grown over the years, particularly accelerating post-2017. For instance, in 2009, the Operating Cash Flow was a mere $2.7 million, whereas it surged to $5.92 billion by 2023. This consistent growth underscores the efficiency and robustness of Diamondback Energy's core operations, making the criterion highly favorable.

Liquidity of Diamondback Energy (FANG)

Leverage is declining?

Change in Leverage assesses the company's improvement in leveraging its assets to maximize revenue and indicates financial health.

In 2023, Diamondback Energy (FANG) reported a leverage ratio of 0.229, a decrease from 0.238 in 2022. This indicates a decline in leverage, reflecting a reduction in the company's debt relative to its equity. Lower leverage levels often signify a company is becoming more conservative in its financial strategy, potentially reducing risks associated with high debt levels. This decrease in leverage over the past year is viewed as a positive trend, earning the company 1 point in this Piotroski criterion. Historically, the leverage of FANG has fluctuated, peaking at 0.3407 in 2011 and dipping to its lowest at 0.0003 in 2012. The recent reduction aligns with a more cautious financial approach seen since 2020, except the spike in 2020 at 0.3192 chiefly due to financial stress brought by Covid-19. This overall downward trend from high leverage indicates sustained efforts towards reducing financial risks.

Current Ratio is growing?

The Current Ratio measures a company's ability to pay off its short-term liabilities with its short-term assets. This liquidity ratio is critical for evaluating the financial health and stability of a company.

In 2023, Diamondback Energy (FANG) has a Current Ratio of 0.769, compared to 0.8112 in 2022. This signifies a decrease in the Current Ratio from 2022 to 2023. A decreasing Current Ratio indicates that the company's ability to cover its short-term obligations with its short-term assets has weakened. This trend is generally viewed unfavorably as it may signal potential liquidity problems. Comparatively, the industry median Current Ratio has been consistently higher, reaching 1.1065 in 2023. Therefore, Diamondback Energy scores 0 points under this criterion.

Number of shares not diluted?

This criterion examines whether the company has issued more shares over the past year. A lower number of shares indicates stronger financial health, as it suggests less dilution for current shareholders.

From 2022 to 2023, Diamondback Energy's outstanding shares increased from 176,539,000 to 179,999,000, indicating a dilution of existing shares. Historically, the company has seen a substantial rise in outstanding shares over the past 20 years, from 22,611,532 in 2009 to 179,999,000 in 2023, a trend that has varied from year to year. This trend shows ongoing dilution, as there have been multiple increases in share numbers. An increase in outstanding shares generally dilutes the value for existing shareholders, potentially signaling additional capital-raising efforts or stock-based compensation, which may be viewed negatively. Therefore, for this criterion under Piotroski Analyses, Diamondback Energy scores 0 points as the outstanding shares increased in 2023.

Operating of Diamondback Energy (FANG)

Cross Margin is growing?

Change in Gross Margin is an important criterion in the Piotroski Analysis as it indicates the company's profitability trends over time. A higher Gross Margin reflects better cost management and pricing of the company's products or services.

Diamondback Energy (FANG) exhibited a Gross Margin of 0.5754 in 2023, compared to 0.7005 in 2022. This represents a decline in Gross Margin, which suggests increased production costs or pricing pressures. Over the past 20 years, Diamondback Energy's Gross Margin has seen significant fluctuations, reaching its lowest in 2020 at 0.2245 and peaking in 2009 at 0.9445. In contrast, the industry's median gross margin has generally followed a steadier albeit downward trend. The industry's median was highest in 2011 at 0.7249 and fell to 0.4978 in 2023. Thus, based on the Piotroski Analysis criteria, Diamondback Energy scores 0 points for this period's Gross Margin change, highlighting potential concerns for profitability.

Asset Turnover Ratio is growing?

Change in Asset Turnover assesses a company's efficiency in using its assets to generate sales.

Comparing the Asset Turnover ratios, Diamondback Energy's Asset Turnover decreased from 0.3896 in 2022 to 0.3021 in 2023. This is not a positive trend. Given that a higher asset turnover ratio indicates better efficiency in utilizing assets to generate revenue, the decline to 0.3021 represents decreased efficiency. Therefore, the score for this criterion would be set to 0.