Last update on 2024-06-06

Vertex Pharmaceuticals (VRTX) - Piotroski F-Score Analysis for Year 2023 (Final Score: 3/9)

Detailed Piotroski F-Score analysis of Vertex Pharmaceuticals (VRTX) for 2023: Profitability, liquidity, and efficiency scored low with a final score of 3/9.

Short Analysis - Piotroski Score: 3

We're running Vertex Pharmaceuticals (VRTX) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The analysis of Vertex Pharmaceuticals (VRTX) based on the Piotroski F-Score results in a score of 3 out of 9. The Piotroski F-Score assesses companies on profitability, liquidity, and operating efficiency. For 2023, VRTX showed positive net income and cash flow from operations, indicating good profitability. However, there were declines in Return on Assets and asset turnover ratio, which may signal inefficiencies. Liquidity metrics also showed some concerns, with a reduction in the current ratio and increased leverage. Additionally, the gross margin declined slightly, and the number of shares outstanding increased, potentially impacting shareholder value. Overall, VRTX earns points for profitability and gross margin, but struggles with liquidity and operating efficiency measurements.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski F-Score of 3, investors should approach Vertex Pharmaceuticals with some caution. While the company shows strong profitability, there are red flags in liquidity and operational efficiency areas that require further investigation. The increasing leverage, declining asset turnover, and reduced current ratio suggest potential financial weaknesses. Additionally, the rise in outstanding shares could dilute shareholder value. Investors might want to look deeper into these areas before committing to this stock as an investment.

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

Profitability of Vertex Pharmaceuticals (VRTX)

Company has a positive net income?

Check if the company's net income is positive in 2023 as a positive net income adds value.

The net income for Vertex Pharmaceuticals (VRTX) in 2023 stands at $3,619,600,000, which is indeed positive. Over the last 20 years, the company has experienced significant volatility in its net income. Starting from a negative $196.8 million in 2003, the company made its first significant positive leap in 2011 with $29.6 million. It wasn't until 2017 that Vertex showed sustained positive growth, with $263.5 million. Post-2017, the net income saw a considerable surge, reaching over $2 billion in multiple years, indicating robust financial growth. For 2023, Vertex Pharmaceuticals earns 1 point for this criterion as it demonstrates consistent and growing profitability, indicating a strong financial position.

Company has a positive cash flow?

The CFO criterion seeks to ascertain whether a company is generating cash from its regular operational activities, indicating financial health.

Vertex Pharmaceuticals (VRTX) has reported a Cash Flow from Operations (CFO) of $3,537,300,000 for the year 2023, which is positive. Based on the Piotroski F-Score model, this would earn the company 1 point. This positive CFO suggests that VRTX is generating sufficient cash through its core business operations. In comparison to its historical performance, the CFO has notably improved from negative figures around 15 years ago to consistent positive figures over the recent years, demonstrating robust operational efficiency and financial health. The continuous rise to a striking $4,129,900,000 in 2022, followed by a slight decrease to $3,537,300,000 in 2023, still represents an overall strong trend. A significant positive CFO highlights the company's ability to fund its operations, investments, and possibly dividends without needing excessive external borrowings.

Return on Assets (ROA) are growing?

Change in ROA compares a company's profitability from year to year, with a positive change indicating better performance.

For 2023, Vertex Pharmaceuticals (VRTX) reported a Return on Assets (ROA) of 0.1771, a decline from 0.2104 in 2022. This results in 0 points for the Piotroski score, as the ROA decreased year-over-year. From a broader historical perspective, while VRTX has significantly improved its operating cash flow over the past 20 years, the declining ROA in 2023 might raise concerns about its asset utilization efficiency. Comparatively, the industry's median ROA for 2023 is 0.4518, evidencing that even with VRTX's past cash flow strengths, its current ROA performance lags behind industry benchmarks. This is a potentially troubling trend and warrants attention for investors.

Operating Cashflow are higher than Netincome?

The criterion states that operating cash flow should be higher than net income, as this indicates high earnings quality and strong liquidity.

For Vertex Pharmaceuticals (VRTX), the operating cash flow for the year 2023 is $3,537,300,000, while the net income is $3,619,600,000. Since the operating cash flow is lower than the net income, this criterion is not met, and it scores 0 points. This trend is concerning as it suggests that the company's earnings might not be fully supported by its cash-generating activities. Over the past 20 years, Vertex's ability to generate operating cash flow has improved significantly, especially from 2012 onwards, with a peak in 2022. However, in the context of the Piotroski analysis, the focus is on the most recent data, which indicates a divergence between net income and operating cash flow, raising red flags about potential earnings management or significant non-cash components in earnings.

Liquidity of Vertex Pharmaceuticals (VRTX)

Leverage is declining?

The criterion evaluates the change in leverage from one period to the next. A decrease in leverage suggests stronger financial health, implying reduced dependency on debt.

In 2023, the leverage for Vertex Pharmaceuticals increased to 0.0319 from 0.0446 in 2022. This signifies a rise in the company's debt levels relative to its equity, which could indicate an increased reliance on borrowed funds. Historically, Vertex's leverage has shown a decreasing trend overall, suggesting an effort to reduce debt. However, this recent slight increase is a deviation from the positive trend and may suggest a need for scrutiny to understand its underlying causes. For this Piotroski criterion, this trend is considered unfavorable, thus scoring a 0.

Current Ratio is growing?

The current ratio measures a company's ability to pay its short-term obligations with its short-term assets. A higher current ratio often indicates strong liquidity.

The current ratio for Vertex Pharmaceuticals (VRTX) has decreased from 4.8265 in 2022 to 3.9872 in 2023, indicating a deterioration in the company's short-term liquidity position. Despite this decrease, it is important to note that the current ratio is still healthy compared to the industry median of 5.7831. Over the past 20 years, Vertex has demonstrated varied liquidity, with instances of both higher and lower current ratios. The decrease this year implies that although Vertex remains relatively liquid, some caution is warranted. For this criterion, Vertex scores 0 points as the current ratio has not increased.

Number of shares not diluted?

Change in shares outstanding measures whether a company issued more shares or repurchased some of its existing shares. A reduction in shares outstanding can suggest increased shareholder value.

For Vertex Pharmaceuticals (VRTX), the number of outstanding shares increased from 256,100,000 in 2022 to 257,700,000 in 2023. This suggests that the company issued more shares during this period. By Piotroski's F-Score criteria, this does not add a point as we add a point only if the shares outstanding decreased. Looking back over the last 20 years, the general trend has been an increase in outstanding shares, peaking in 2020 at 259,841,000. This consistent trend of issuing more shares might indicate various strategies such as capital raising or stock-based compensation, which should be examined further for a comprehensive evaluation.

Operating of Vertex Pharmaceuticals (VRTX)

Cross Margin is growing?

Gross Margin reflects the percentage of revenue that exceeds the cost of goods sold (COGS), measuring the efficiency and profitability of a company.

Vertex Pharmaceuticals' Gross Margin decreased slightly from 0.879 in 2022 to 0.8721 in 2023. Even though this decline might seem marginal, it signifies a minor reduction in the company's efficiency in managing its production costs relative to its revenue. The Gross Margin trend over the past 20 years shows a general downward trajectory since its peak in the early 2000s. Still, the company has consistently maintained a Gross Margin significantly higher than the industry median, which dropped to 0.4518 in 2023. Despite the slight dip, Vertex Pharmaceuticals' Gross Margin remaining at this elevated level signals sustained competitive advantage in cost management, thereby deserving a score of 1 point according to Piotroski's criterion.

Asset Turnover Ratio is growing?

The asset turnover ratio measures a company's efficiency in using its assets to generate revenue. Higher values indicate effective use of assets. A flat or lower ratio may signify underutilization or potential issues.

In 2023, the asset turnover ratio for Vertex Pharmaceuticals (VRTX) was 0.4828, a notable decrease from 0.5655 in 2022. This trend suggests a reduction in efficiency in how the company utilizes its assets to generate revenue. Historically, Vertex's asset turnover has seen substantial increases, especially post-2010 with peaks such as 0.7725 in 2017. The recent drop from 0.6184 in 2020 to 0.4828 in 2023 highlights a potential area of concern for stakeholders. Given the decline, this criterion scores 0 points, signifying the company did not show improved asset turnover efficiency year-over-year.