Last update on 2024-06-07

L3Harris Technologies (LHX) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

L3Harris Technologies (LHX) Piotroski F-Score analysis for 2023 reveals a 6/9 score, assessing profitability, liquidity, and operational efficiency.

Short Analysis - Piotroski Score: 6

We're running L3Harris Technologies (LHX) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

L3Harris Technologies (LHX) has been evaluated using the Piotroski F-Score, which assesses a company's profitability, liquidity, and operational efficiency. L3Harris scored a 6 out of 9, signaling a reasonably strong financial position. The company has shown consistent profitability with positive net income and cash flow from operations, both higher than net income, which adds to earnings reliability. However, while the company's leverage (debt levels) has risen, the current ratio has decreased, signifying potential liquidity issues. Shares outstanding have decreased, reflecting strategic buybacks. Operationally, the gross margin has declined, but asset turnover has slightly improved.

Insights for Value Investors Seeking Stable Income

L3Harris Technologies (LHX) has exhibited a stable financial performance with consistent profitability, strong cash generation, and strategic share buybacks, which are all positive signs for investors. However, increasing leverage and decreasing liquidity ratios present potential risks. Investors should weigh these factors and closely monitor the company's ability to manage its debt and improve liquidity moving forward. If you prioritize cash flow and profit consistency, LHX could be a stock to consider, but it's crucial to stay informed about its financial strategies and industry performance.

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

Profitability of L3Harris Technologies (LHX)

Company has a positive net income?

Net income represents a company’s total earnings or profit and reflects its financial health.

With a net income of $1,227,000,000 in 2023, L3Harris Technologies shows a positive net income. Historically, the company has demonstrated positive net income for the last 20 years, with significant growth particularly noticeable after 2015. This consistent profitability is beneficial for the stock valuation and signals effective management. Hence, 1 point for positive net income.

Company has a positive cash flow?

Cash Flow from Operations (CFO) measures the cash inflows and outflows from the company's core business activities. It is essential because it shows whether operating activities can generate sufficient cash to sustain the business.

For L3Harris Technologies (LHX), the CFO in 2023 is $2.096 billion, which is positive and strong. Analyzing over the last 20 years, L3Harris has shown a significant upward trend in CFO, peaking at $2.79 billion in 2020. This consistent performance highlights robust cash generation from operations over the years, indicating financial stability and operational efficiency.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) captures the company's effectiveness in converting its assets into net income, indicating profitability trends.

The ROA for L3Harris Technologies (LHX) improved from 0.0311 in 2022 to 0.0326 in 2023, marking an increase. This uptick in ROA is positive, suggesting the company has become more efficient in utilizing its assets to generate earnings. Despite this improvement, it is crucial to contextualize the number within the industry standards. The industry median ROA consistently was significantly better each year in the past two decades, with medians such as 0.2454 in 2007 and 0.2484 in 2023. With a comparison of L3Harris's ROA of 0.0326 to an industry median of 0.2484 in 2023, LHX's performance, although improved, still lags behind its industry peers.

Operating Cashflow are higher than Netincome?

Operating Cash Flow relative to Net Income helps assess the quality of a company's earnings. If Operating Cash Flow exceeds Net Income, it suggests that earnings are backed by strong cash generation.

In 2023, L3Harris Technologies (LHX) reported an Operating Cash Flow of $2,096,000,000 and a Net Income of $1,227,000,000. This indicates that the Operating Cash Flow is indeed higher than Net Income, which is a positive sign. It means LHX's earnings are supported by actual cash flow, adding reliability. Hence, we would add 1 point for this criterion.

Liquidity of L3Harris Technologies (LHX)

Leverage is declining?

Change in Leverage measures how much a company's financial leverage or debt level has fluctuated year-over-year. Reductions in leverage indicate decreasing financial risk.

The Leverage for L3Harris Technologies increased from 0.1857 in 2022 to 0.2677 in 2023. This represents a rise in leverage by approximately 44%, which is not favorable according to Piotroski Analysis as it suggests increased financial risk. Over the past 20 years, leverage levels have fluctuated with significant peaks and valleys, but the 2023 value marks one of the higher recent leverage ratios, indicating a trend towards increased debt levels.

Current Ratio is growing?

Change in Current Ratio compares a company's current assets to its current liabilities over different periods. It's essential for assessing short-term liquidity and financial health.

The Current Ratio for L3Harris Technologies has decreased from 1.1693 in 2022 to 1.0064 in 2023, resulting in a 0 points addition for this criterion. A decreasing current ratio trend is concerning as it indicates lesser coverage of short-term liabilities using short-term assets. The historical data suggests this ratio has been consistently decreasing over the years, significantly underperforming the industry median (2.1805 in 2023). This underperformance may signal liquidity risks compared to competitors in the sector.

Number of shares not diluted?

Change in shares outstanding is a critical factor because it impacts earnings per share (EPS) and certain valuation metrics. A decrease often indicates share buybacks.

In 2023, L3Harris Technologies reported 189,600,000 outstanding shares, down from 191,800,000 in 2022. This denotes a decrease in outstanding shares, indicating that the company has likely executed share buybacks, which generally improves EPS by reducing the number of shares over which earnings are distributed. This trend can be beneficial for shareholders as it often reflects the company’s confidence in its financial stability and future performance. Hence, we add 1 point in this criterion. Looking at the last 20 years' data, the number of shares has fluctuated but saw significant buybacks in recent years, underscoring the firm’s strategic capital allocation.

Operating of L3Harris Technologies (LHX)

Cross Margin is growing?

The criterion assesses whether the company's Gross Margin has improved year over year, indicating better profitability and efficient cost management.

In 2023, L3Harris Technologies reported a Gross Margin of 0.2633, a decline from 0.2888 in 2022. This indicates a reduction in profitability and might signal deteriorating cost efficiency. Over the last two decades, L3Harris consistently maintained a Gross Margin above the industry median, indicating outperformance relative to competitors. Despite this, the recent downward trend is concerning. Therefore, the Piotroski score for this criterion remains 0, reflecting the decline in the company's Gross Margin.

Asset Turnover Ratio is growing?

Asset Turnover assesses the efficiency of a company in using its assets to generate sales, calculated as net sales divided by average total assets.

The Asset Turnover for L3Harris Technologies has indeed increased from 0.5001 in 2022 to 0.5164 in 2023, which translates to an increment of approximately 3.2%. This trend is generally positive as it indicates an improvement in the efficiency with which the company is utilizing its assets to generate revenue. Historically, the data from the past 20 years reveals fluctuating values, with a high in 2005 at 1.2814 and a significant decline post-2014. Despite the current increase, the Asset Turnover ratio is still relatively low compared to its historical peak. Nonetheless, the incremental improvement from the previous year is a step in the right direction, earning 1 point according to the Piotroski F-Score methodology.