Last update on 2024-06-05

Laboratory Corp of America Holdings (LH) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Analyze Laboratory Corp of America's Piotroski F-Score for 2023, scoring 6/9. Assess key financial metrics like profitability, liquidity, and efficiency.

Short Analysis - Piotroski Score: 6

We're running Laboratory Corp of America Holdings (LH) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Laboratory Corp of America Holdings (LH) has been analyzed using the Piotroski F-Score, a method that gauges the company's financial strength by examining nine criteria related to profitability, liquidity, and operating efficiency. For 2023, LH scored 6 out of 9. The details are as follows: 1. **Profitability:** - Positive net income, reflecting profitability. - Positive Cash Flow from Operations (CFO), maintaining a $1,327,700,000 figure despite a decline from previous years. - A decrease in Return on Assets (ROA), indicating efficiency challenges. - Higher Operating Cash Flow than Net Income, suggesting high-quality earnings. 2. **Liquidity:** - Increased leverage ratio, albeit slightly, indicating rising debt levels. - Declining Current Ratio, which suggests lesser ability to cover short-term liabilities. - Reduced number of outstanding shares, showing share buybacks and increased shareholder value. 3. **Operating Efficiency:** - Decreased Gross Margin, suggesting poorer operational efficiency. - Improved Asset Turnover Ratio, indicating better utilization of assets for revenue generation.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski F-Score analysis, Laboratory Corp of America Holdings (LH) shows strengths in profitability and operational efficiency but has some concerns regarding liquidity, especially with an increasing leverage ratio and declining current ratio. While the company has maintained positive cash flow and engaged in share buybacks, its decreased gross margin and ROA point towards efficiency challenges. Investors might consider LH a potentially strong option given its positive cash metrics and share buyback pattern, but the liquidity concerns should not be overlooked. Those interested in LH should weigh these factors carefully and keep a close eye on the company’s ability to manage debt and improve efficiency.

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

Profitability of Laboratory Corp of America Holdings (LH)

Company has a positive net income?

Explain the criterion for Laboratory Corp of America Holdings (LH) and why it is important to consider

Net income measures a company's total profit after all expenses. A positive net income indicates profitability.

Company has a positive cash flow?

Cash Flow from Operations (CFO) is a critical measure of a company's ability to generate cash through its core business activities. This figure is key to long-term sustainability.

In 2023, Laboratory Corp of America Holdings (LH) reported a positive CFO of $1,327,700,000. This positive trend adds 1 point according to the Piotroski Analysis framework. Notably, LH has maintained positive CFO for at least the last 20 years. CFO peaked at $3,109,600,000 in 2021 and gradually declined to the 2023 figure. While the recent trend reflects a downward movement, the company’s consistent ability to generate positive cash flow through its operations remains a strong sign of financial health.

Return on Assets (ROA) are growing?

Return on Assets (ROA) assesses a company's efficiency in generating profits relative to its total assets. Higher ROA indicates better management and efficient use of assets.

In 2023, the ROA for Laboratory Corp of America Holdings (LH) was 0.0227, a decrease from 0.0631 in 2022. Consequently, the trend is negative, and the score setting should be 0. This decline suggests LH may have faced challenges in using its assets efficiently to generate profits compared to the previous year. For context, the industry median ROA for the same period indicates that the sector generally saw a better efficiency trend, with a median increasing from 0.4959 in 2021 to 0.5234 in 2022, although LH's ROA figures remained substantially below these median values. This demonstrates a potential competitive disadvantage for LH in asset utilization within its industry.

Operating Cashflow are higher than Netincome?

This metric examines if Operating Cash Flow exceeds Net Income, indicating high-quality earnings not reliant on non-cash items.

In 2023, Laboratory Corp of America Holdings (LH) reported an Operating Cash Flow of $1,327,700,000, while its Net Income stood at $418,000,000. The Operating Cash Flow being substantially higher than the Net Income is a positive sign, suggesting that LH's earnings are robust and stem from core operations rather than being driven by non-cash adjustments or accounting maneuvers. Over the last 20 years, this has often been the case, with few exceptions, affirming LH's sound operational performance. Thus, this criterion adds 1 point.

Liquidity of Laboratory Corp of America Holdings (LH)

Leverage is declining?

Change in leverage measures the difference in a company's leverage ratios over a specified period, typically year-over-year.

For Laboratory Corp of America Holdings (LH), the leverage ratio has increased slightly from 0.2866 in 2022 to 0.2859 in 2023, yielding a net increase. Despite the marginal change, an upward trend in leverage can signal rising debt levels or declining equity, both of which may impact financial stability. Historically, the company's leverage metrics show substantial variations, with peaks and troughs over the last two decades, although recent years have shown a more stable pattern. Increasing leverage indicates a need for scrutiny on potential risks linked to higher debt levels.

Current Ratio is growing?

Explain the criterion for Laboratory Corp (LH) and why it is important to consider. Current ratio measures a company's ability to pay short-term obligations.

In 2023, Laboratory Corp of America Holdings (LH) has a Current Ratio of 1.1675, a decline from 1.5024 in 2022. This reduction indicates that LH's ability to cover its short-term liabilities has weakened. Over the past 20 years, LH's Current Ratio shows a mixed trend with some spikes, but generally appears more volatile compared to the stable upward trends of the industry median. For instance, in 2009, LH had a low of 0.9187, significantly below the industry median of 2.6732. Consistent underperformance relative to the industry median could highlight liquidity issues. With this decrease in Current Ratio, LH scores 0 points for this criterion, reflecting a worsened liquidity position from last year.

Number of shares not diluted?

This criterion assesses whether the company has reduced its outstanding shares year-over-year, which is often a positive sign as it indicates share buybacks.

Comparing 2022 and 2023, Laboratory Corp of America Holdings (LH) saw its outstanding shares decrease from 91,100,000 in 2022 to 87,100,000 in 2023. This represents a reduction of 4,000,000 shares, or approximately 4.39%. This trend is positive, suggesting that the company is engaging in share buybacks, which can be seen as a signal of confidence by the management in the company's future and a commitment to returning value to shareholders. Historical data further supports this positive view, showing a general trend of share reduction over the past 20 years, enhancing shareholder value and potentially boosting earnings per share (EPS). Hence, for this criterion, LH scores 1 point.

Operating of Laboratory Corp of America Holdings (LH)

Cross Margin is growing?

Gross Margin compares the total revenue generated by a company versus its cost of goods sold (COGS). It is a crucial indicator of operational efficiency and profitability.

The gross margin for Laboratory Corp of America Holdings (LH) decreased from 0.3126 in 2022 to 0.2767 in 2023, which is a negative trend, warranting 0 points. The gross margin trend over the last 20 years demonstrates a steep decline from 0.4166 in 2003 to the current 0.2767 – marking a substantial reduction in profitability. When compared to the industry median, which rose from 0.4344 in 2003 to 0.504 in 2023, LH is performing below average. Various factors, such as increased competition, operational inefficiencies or higher COGS relative to revenue, could be responsible for this decline.

Asset Turnover Ratio is growing?

Piotroski's criterion examines the change in the asset turnover ratio to assess how efficiently a company is using its assets to generate revenue. By comparing the asset turnovers of consecutive years, investors can gauge the effectiveness of a company's management in deploying assets for revenue growth.

Laboratory Corp of America Holdings (LH) posted an asset turnover ratio of 0.6595 in 2023, up from 0.5853 in 2022. This increase translates into a positive Piotroski point, as the company demonstrates improved efficiency in using its assets to generate revenue. Over the last two decades, LH has exhibited varying degrees of asset efficiency, but the recent uptick represents a strong positive trend. Specifically, considering that the asset turnover ratios saw continuous declines after peaking close to 1.0 in the mid-2000s, the 2023 ratio potentially indicates either better utilization of existing assets or an optimized asset base. This increment is a promising development for stakeholders, given the previous year's lower efficiency.