Last update on 2024-06-05

Waters (WAT) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Analyze Waters Corporation (WAT) with our in-depth Piotroski F-Score evaluation for 2023, scoring 4 out of 9. Explore its financial strengths and weaknesses here.

Short Analysis - Piotroski Score: 4

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

The Piotroski F-Score rates a company's financial health on a scale from 0 to 9. Waters Corporation (WAT) received a score of 4, suggesting a mixed financial outlook. Here's a breakdown of the analysis: 1. Profitability: WAT shows positive net income ($642M) and positive cash flow from operations ($602M), but experienced a decline in Return on Assets (ROA). 2. Liquidity: WAT’s current ratio mildly declined from 2.2449 to 2.22, indicating stable but not improved liquidity. Leverage (debt use) increased from 0.4836 to 0.511, which is unfavorable. 3. Operating Efficiency: Gross Margin improved but the company’s asset turnover ratio declined. Also, operating cash flow is lower than net income, raising some concerns. 4. Share Buybacks: Positive sign as the number of outstanding shares decreased. In summary, Waters has some strengths, notably in profitability and gross margin improvement, but also faces challenges in asset efficiency, ROA decline, and increased leverage.

Insights for Value Investors Seeking Stable Income

Given these mixed results, Waters Corporation may still be worth considering, particularly for its strong operational performance and positive historical trend in share buybacks. However, potential investors should exercise caution due to increased leverage and declining asset turnover. It would be prudent to monitor these aspects closely before making a financial commitment.

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

Profitability of Waters (WAT)

Company has a positive net income?

Net income measures a company's profitability and is a key indicator of financial health.

Waters Corporation (WAT) has reported a net income of $642,234,000 for the year 2023, which is positive. This is a good indicator for the company, demonstrating its ability to generate profit. Historically, Waters has shown a consistent ability to maintain positive net income, with the only significant dip occurring in 2017. The positive net income in 2023 adds 1 point for this criterion, affirming the company's continued profitability and financial stability.

Company has a positive cash flow?

Cash Flow from Operations (CFO) measures the cash generated by a company’s regular operating activities. Positive CFO indicates effective revenue generation and operational efficiency.

For 2023, Waters Corporation (WAT) reported a Cash Flow from Operations (CFO) of $602,809,000, which is positive. Over the past 20 years, Waters has consistently maintained positive CFO, with figures ranging from $157,005,000 in 2003 to a peak of $790,507,000 in 2020. This trend indicates strong operational efficiency and effective revenue generation capabilities, making this a favorable criterion for the Piotroski analysis.

Return on Assets (ROA) are growing?

Return on Assets (ROA) measures a company's profitability relative to its total assets. It is a key indicator of how effectively a company is converting its investments into net income. ROA is essential for investors to understand how efficiently a company is using its assets to generate earnings, and a higher ROA indicates better performance.

In 2023, Waters (WAT) reported an ROA of 0.1624, a decline from the ROA of 0.222 in 2022. This 27% decrease suggests a deterioration in the company's efficiency in generating profits from its assets. This trend raises concerns, especially considering that over the past 20 years, the industry median ROA has generally been higher, fluctuating between 0.4344 and 0.5234. For the most recent years, the median hovered above 0.4900, significantly outperforming Waters' ROA. Consequently, Waters receives 0 points for this criterion, reflecting its poor performance.

Operating Cashflow are higher than Netincome?

Operating Cash Flow higher than Net Income is a crucial criterion for assessing the quality of earnings and cash generation capabilities of Waters (WAT). This measure helps to determine if the company is able to generate enough cash from its operations to cover its net income. A higher operating cash flow compared to net income indicates strong cash generation and is less prone to accounting manipulation, making it a positive indicator for investors.

In 2023, Waters (WAT) reported an Operating Cash Flow of $602,809,000 compared to a Net Income of $642,234,000. Since the operating cash flow is lower than the net income for this period, we assign a 0 point for this criterion. Over the last 20 years, the Operating Cash Flow has generally trended upwards: from $157,005,000 in 2003 to $611,661,000 in 2022. In contrast, Net Income saw fluctuating values, but overall growth from $170,891,000 in 2003 to $642,234,000 in 2023. The accruals have notably decreased from 0.1388 to 0.1303 over the same period, which is also a good signal. That said, the recent year shows a deterioration in the Operating Cash Flow relative to Net Income, which could indicate potential challenges in cash collection efficiency or quality of earnings. Despite this single-year dip, considering longer-term trends would give a more holistic picture of financial stability.

Liquidity of Waters (WAT)

Leverage is declining?

Leverage assesses the amount of debt used to finance a company's assets. Lower leverage is typically favorable as it indicates less financial risk.

For Waters (WAT), leverage increased from 0.4836 in 2022 to 0.511 in 2023. This is an unfavorable trend, meaning the company increased its reliance on debt to finance assets. From 2003 to 2023, leverage has varied: it was as low as 0.1105 in 2003 and peaked at 0.6444 in 2019, showing the company has dealt with different levels of debt over time. Given the increase in leverage in 2023, WAT does not meet this Piotroski criterion, so it scores 0 points.

Current Ratio is growing?

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations with its short-term assets. A higher current ratio indicates better liquidity and financial health. It’s important for assessing how well a company can cover its short-term liabilities with its short-term assets.

In 2023, the current ratio for Waters (WAT) is 2.22, compared to 2.2449 in 2022. This represents a slight decrease. Given the Piotroski scoring criteria, where an increase in the current ratio from the previous year would score a point, the decrease in 2023 results in no points being awarded for this criterion (0 points). Looking back over the last 20 years, Waters has generally maintained a current ratio that is higher than the industry median in most years, indicating better liquidity compared to its peers. However, the decrease in 2023 breaks the positive trend observed in the recent past. Despite this, maintaining a current ratio above 2 signifies that Waters has enough current assets to cover twice its current liabilities, which still reflects a healthy financial state.

Number of shares not diluted?

Change in shares outstanding indicates whether a company is diluting shares or buying back shares, which can impact shareholder value and control.

In 2023, Waters (WAT) reported 59,076,000 outstanding shares compared to 59,985,000 in 2022, showing a decrease. This reduction in outstanding shares is generally favorable as it indicates a share buyback, which tends to boost shareholder value by consolidating ownership and potentially increasing earnings per share. Over the last 20 years, Waters has consistently reduced its number of outstanding shares from 127,579,000 in 2003 to 59,076,000 in 2023. This confirms a long-term strategic focus on share buybacks and increasing shareholder value. As the shares have decreased in 2023, Waters should be awarded 1 point for this criterion.

Operating of Waters (WAT)

Cross Margin is growing?

Gross Margin compares a company's revenue relative to its cost of goods sold. Increasing Gross Margins signal improved profitability.

Waters (WAT) saw its Gross Margin increase from 0.58 in 2022 to 0.5957 in 2023. This improvement is marginal but noteworthy given the increased competitive pressure in the industry. The 2023 Gross Margin is significantly above the 2023 industry median of 0.504, showcasing Waters' superior operational efficiency. This trend is positive, marking an enhanced ability to convert revenues into actual profit, gaining 1 point for this pivot.

Asset Turnover Ratio is growing?

The Change in Asset Turnover criterion examines year-over-year efficiency in generating revenue from assets, helping gauge operational effectiveness.

Comparing the asset turnover for Waters (WAT) from 2022 to 2023, there has been a decrease from 0.9322 to 0.7477. Hence, the company does not earn a point for this criterion. The decline indicates reduced efficiency in utilizing assets to generate revenue, marking a suboptimal trend contrary to the upswing noted in 2022. Historically, this is not an isolated incident; for instance, post-2010, Waters experienced an analogous downtrend, wherein asset turnover dipped from 0.776 in 2010 to a low of 0.4624 by 2017. Though there was recovery afterward, Waters needs to address underlying inefficiencies to reinstate prior asset utilization levels.