Last update on 2024-06-06

Westinghouse Air Brake Technologies (WAB) - Piotroski F-Score Analysis for Year 2023 (Final Score: 8/9)

Westinghouse Air Brake Technologies (WAB) Piotroski F-Score: 8/9 for 2023. Insights on profitability, liquidity, and asset utilization trends.

Short Analysis - Piotroski Score: 8

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

Westinghouse Air Brake Technologies (WAB) scored an 8 out of 9 on the Piotroski F-Score, which examines the company's profitability, liquidity, and operating efficiency. Over the years, WAB has shown strong financial health with a significant positive net income of $815 million in 2023, a high operating cash flow of $1.2 billion, growing return on assets, and operating cash flow exceeding net income. The company also demonstrated efficient asset utilization and a slight increase in gross margin. However, the evaluation showed no growth in the current ratio and a rise in leverage.

Insights for Value Investors Seeking Stable Income

Given WAB's overall strong performance based on the Piotroski F-Score with a score of 8, it presents itself as a potentially strong investment. The company's consistent profitability, solid cash flow, and effective asset use indicate robust financial health. Though there are minor concerns regarding leverage and liquidity, the positive long-term trends make WAB a worthwhile consideration for investors.

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

Profitability of Westinghouse Air Brake Technologies (WAB)

Company has a positive net income?

Net income is the total profit of a company after all expenses and taxes have been deducted from revenue. It is one of the most significant indicators of a company's profitability, financial health, and its ability to generate profit for shareholders.

Westinghouse Air Brake Technologies (WAB) reported a net income of $815 million in 2023. The net income is undoubtedly positive and has demonstrated a robust upward trend over the last two decades. For instance, in 2003, the company had a net income of merely $22.7 million, and this figure has generally increased year-over-year, punctuating a resilient trajectory in profitability. Consequently, according to the Piotroski F-Score, this makes a favorable contribution and adds 1 point to the overall evaluation. This trend bodes well for investors, indicating consistent growth and efficient cost management.

Company has a positive cash flow?

Cash Flow from Operations (CFO) is an essential metric that measures the cash a company generates from its regular business operations.

Westinghouse Air Brake Technologies (WAB) reported a CFO of $1,201,000,000 for 2023, indicating a positive cash flow. This substantial growth in CFO indicates an upward trend over the past two decades, clearly showing WAB's efficient operational performance and robust financial health. In reviewing the CFO trend from 2003 to 2023, WAB has impressively grown from $55,904,000 to this current figure. This upward trajectory in CFO is a positive indicator, signaling not only efficiency in operations but also the company's underlying profitability. Therefore, WAB deservedly earns 1 point for having a positive CFO in 2023. Chart-wise, the CFO curve has steeply ascended, underscoring the company’s financial prowess.

Return on Assets (ROA) are growing?

Change in ROA reflects the company's ability to generate profit from its assets, a crucial indicator of efficient asset utilization.

The ROA for Westinghouse Air Brake Technologies (WAB) increased from 0.0342 in 2022 to 0.0435 in 2023, suggesting an improvement in asset utilization efficiency. Given that the company's operating cash flow also rose significantly from $1,038 million in 2022 to $1,201 million in 2023, this trend is positive. This improvement, coupled with the consistent upward trend in operating cash flows over the past decade, signals enhanced profitability and operational efficiency. Therefore, WAB earns 1 point for this criterion.

Operating Cashflow are higher than Netincome?

Operating cash flow higher than net income indicates good earnings quality

For 2023, Westinghouse Air Brake Technologies (WAB) reported an operating cash flow of $1,201 million, which is substantially higher than its net income of $815 million. This positive discrepancy signifies that the company is generating enough cash to not only cover its net income but also potentially reduce debt, reinvest in operations, or return capital to shareholders. Given this factor, WAB deserves a score of 1 point. Historically, the operating cash flow has demonstrated a robust upward trajectory from $55.9 million in 2003, showing a growth trend which further substantiates the company's strong cash-generating capacity. This is also evident in the accruals data, where a downward trend over the past few years indicates a decrease in non-cash earnings components, adding further credibility to WAB's reported earnings.

Liquidity of Westinghouse Air Brake Technologies (WAB)

Leverage is declining?

Change in Leverage measures the company's debt relative to its equity and financial obligations.

In examining the leverage ratio for Westinghouse Air Brake Technologies, we observed an increase from 0.2026 in 2022 to 0.1732 in 2023. Evaluating the long-term trend over two decades, the average leverage tends to fluctuate. A reduction signifies a lower dependency on debt, which could indicate stronger financial stability or reduced interest burden. Conversely, the recent increase to 0.1732 suggests a potential strategy of using additional debt. Ultimately, increasing leverage, in this context, indicates that the company might be leveraging more debt to fuel expansion or operating needs, with potential downstream financial implications. Thus, for this criterion, no point is added.

Current Ratio is growing?

The Current Ratio measures a company's ability to cover its short-term liabilities with short-term assets and is a key indicator of liquidity.

In 2023, Westinghouse Air Brake Technologies (WAB) reported a Current Ratio of 1.197, a slight decrease from 1.2481 in 2022. This is not a positive sign as it implies a reduced ability to cover short-term obligations. However, when examining the last 20-year trend, WAB's Current Ratio remains relatively stable but decreased over time, which may suggest increasing efficiency or rising short-term liabilities. Additionally, WAB's Current Ratio aligns with the 2023 industry median of 1.197, indicating it is in line with its peers. Nonetheless, for Piotroski Score purposes, this criterion would be assigned a score of 0 since the Current Ratio did not increase.

Number of shares not diluted?

Change in Shares Outstanding reflects the company's potential share dilution or repurchase actions.

Over the past 20 years, Westinghouse Air Brake Technologies (WAB) has shown fluctuations in its outstanding shares, which increased substantially around 2018, peaked in 2020, and have been declining since. For the latest year-on-year comparison, the number of outstanding shares decreased from 182,200,000 in 2022 to 178,800,000 in 2023. This change indicates a share repurchase trend, which can be seen as a favorable sign for shareholders as it implies that the company is reducing available shares, potentially increasing the value of remaining shares. Therefore, WAB earns 1 point for this criterion, reflecting positively on the company's financial maneuvering to enhance shareholder value.

Operating of Westinghouse Air Brake Technologies (WAB)

Cross Margin is growing?

Gross Margin measures the percentage of revenue that exceeds the cost of goods sold. It is critical as it gauges the fundamental profitability of the company's core activities.

The Gross Margin for Westinghouse Air Brake Technologies (WAB) increased from 0.3038 in 2022 to 0.3042 in 2023. This slight increase of 0.0004 points translates to an improvement in the company's efficiency in managing its production costs relative to its revenue. On a year-over-year basis, WAB adds 1 point in the Piotroski Analysis framework. This marginal uptick suggests that the core profitability of WAB has become slightly better. When compared with the industry median of 0.3176 in 2023, WAB is somewhat trailing. However, over a long-term period of 20 years, WAB has shown a steady upward trajectory in its gross margin from 0.2639 in 2003 to 0.3042 in 2023. The industry median, meanwhile, depicts more volatility, positioning WAB as a relatively stable performer in managing its cost of goods sold. Although the latest year's gross margin edge is minor, it is a positive indicator especially because it is consistent with WAB's long-term growth trend.

Asset Turnover Ratio is growing?

The Change in Asset Turnover criterion examines the ratio of sales to assets indicating how efficiently a company is using its assets.

For Westinghouse Air Brake Technologies (WAB), the Asset Turnover increased from 0.4524 in 2022 to 0.5161 in 2023, suggesting improved efficiency in asset utilization. Historically, the last 20 years show fluctuating trends with the highest ratio in 2005 (1.3344) and lowest during the pandemic in 2020 (0.4047). Despite historical volatility, 2023 shows a positive trend, adding 1 point in the Piotroski score.