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Last update on 2024-06-05

CVS Health (CVS) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

CVS Health's 2023 Piotroski F-Score Analysis indicates strong financial health with a score of 6/9, highlighting profitability, liquidity, and operating efficiency.

Knowledge hint:
The Piotroski F-Score is a number between 0 to 9 which reflects the strength of a company's financial position. It is based on 9 criteria involving profitability, liquidity, and leverage. This model helps investors identify stocks that are strong, undervalued investments.
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Short Analysis - Piotroski Score: 6

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

Criteria
Company has a positive net income?
1
Company has a positive cash flow?
1
Return on Assets (ROA) are growing?
1
Operating Cashflow are higher than Netincome?
1
Leverage is declining?
0
Current Ratio is growing?
0
Number of shares not diluted?
1
Cross Margin is growing?
0
Asset Turnover Ratio is growing?
1

CVS Health was evaluated using the Piotroski Score, which ranges from 0 (weak) to 9 (strong). CVS scored 6, reflecting a relatively strong financial position. The score was based on profitability, liquidity, and operating efficiency criteria: -profitability: CVS achieved positive net income, cash flow, return on assets, and higher operating cash flow than net income, earning full points here. -liquidity: CVS struggled in leverage and current ratio but reduced diluted shares, indicating some risks in liquidity. -operating efficiency: CVS improved in asset turnover but saw a decrease in gross margin. Overall, CVS displayed good profitability and operational efficiency but faced challenges in liquidity and leverage.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski Score and its components, CVS Health is a relatively strong investment but comes with some risks. If your investment strategy prioritizes profitability and operational efficiency over liquidity, CVS may be a suitable option. Conversely, if you prioritize financial stability and low debt, you might want to approach with caution. Further detailed analysis and monitoring of the company's liquidity and leverage trends are recommended.

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

Profitability of CVS Health (CVS)

Company has a positive net income?

The criterion examines whether CVS Health’s net income is positive, which indicates profitability. A positive net income suggests a company is generating excess revenue after covering all expenses.

Historical Net Income of CVS Health (CVS)

CVS Health’s net income for 2023 stands at $8,344,000,000, which is clearly positive. This earns CVS 1 point in the Piotroski analysis. Tracking their net income over the last 20 years shows consistent profitability, with a peak at $8,344,000,000 in 2023 and a low at -$594,000,000 in 2018. This trend reveals resilience and robust earnings capability, despite the year of negative income in 2018.

Company has a positive cash flow?

Cash Flow from Operations (CFO) is a key indicator of a company's financial health, reflecting the cash generated by a company's regular business operations.

Historical Operating Cash Flow of CVS Health (CVS)

In 2023, CVS Health's Cash Flow from Operations (CFO) is $13,426,000,000, which is positive. Over the last 20 years, the CFO has generally shown an upward trend, despite some fluctuations. For example, the CFO increased from $968.9 million in 2003 to $15,865 million in 2020, but slightly declined to $13,426 million in 2023. A consistently positive CFO indicates robust operational performance and the ability to generate liquidity, which is crucial for covering expenses and investments. Therefore, this trend is good and merits a score of 1 point in the Piotroski Analysis.

Return on Assets (ROA) are growing?

The criterion evaluates the change in Return on Assets (ROA) year-over-year. An increase in ROA signifies improved profitability and effective asset utilization.

Historical change in Return on Assets (ROA) of CVS Health (CVS)

In 2022, CVS Health reported a Return on Assets (ROA) of 0.0187, which increased to 0.0349 in 2023. This substantial uptick in ROA adds 1 point to the Piotroski F-Score. Such a positive trend in ROA is a signal of greater efficiency in generating earnings from its asset base. When gauged against industry performance, where the Median ROA has been on a general decline (e.g., from 0.2145 in 2003 to 0.1124 in 2023), CVS's ascent in ROA is notably competitive. For additional context, CVS's operating cash flow has demonstrated upward momentum over the years, adding credibility to the growing ROA figure.

Operating Cashflow are higher than Netincome?

This criterion compares the Operating Cash Flow (OCF) with Net Income (NI). It is important as higher OCF indicates better quality of earnings, suggesting that a firm's profits are not just paper profits.

Historical accruals of CVS Health (CVS)

For CVS Health (CVS) in the year 2023, the Operating Cash Flow was $13.426 billion, while the Net Income was $8.344 billion. Since the Operating Cash Flow is significantly higher than the Net Income, CVS Health scores 1 point on this criterion. This is a positive trend suggesting CVS Health's earnings quality is strong, as actual cash flow from operations exceeds net profit. Reviewing a historical context, we see that CVS's OCF has steadily increased over the last two decades, starting from $968.9 million in 2003 to $13.426 billion in 2023. This upward trend is a robust indicator of healthy operational performance over the long term. Similarly, Net Income has shown a growth trend, despite some volatility, demonstrating CVS Health's capacity to generate profit consistently. Moreover, the accruals, defined as the difference between accounting profits (Net Income) and actual cash generation (OCF), having mostly reduced over time, further strengthens the argument for earnings quality. High accruals can sometimes point to less reliable earnings from adjustments and estimates. Therefore, the lower and declining accruals further affirm the reliability and quality of CVS Health profitability over these years.

Liquidity of CVS Health (CVS)

Leverage is declining?

Leverage assesses a company's ability to meet its financial obligations. Lower leverage indicates lower risk.

Historical leverage of CVS Health (CVS)

The Leverage ratio of CVS Health has increased from 0.2947 in 2022 to 0.299 in 2023. This increase implies a higher financial risk and potentially lower financial stability. Notably, over the past 20 years, CVS Health has seen its leverage vary with significant fluctuation, reaching its highest level at 0.3759 in 2019. Its current upward trend indicates caution, as elevated leverage can constrain operational flexibility and increase vulnerability. Thus, a score of 0 is assigned for this criterion.

Current Ratio is growing?

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

Historical Current Ratio of CVS Health (CVS)

In the case of CVS Health (CVS), the current ratio has decreased from 0.9454 in 2022 to 0.8569 in 2023. This decrease is indicative of a slight decline in the company’s short-term liquidity. For comparison, the industry median current ratio for 2023 stands at 1.11, which is higher than CVS's current ratio. Over the past twenty years, CVS's current ratio has seen a declining trend from a high of 1.8621 in 2003 to the current value. Therefore, CVS will receive 0 points in this Piotroski criterion as the current ratio did not increase.

Number of shares not diluted?

Share count changes, representing the proportion of ownership in a company, can significantly impact valuation metrics.

Historical outstanding shares of CVS Health (CVS)

The outstanding shares for CVS Health (CVS) decreased from 1,312,000,000 in 2022 to 1,285,000,000 in 2023. This decrease signifies a reduction in the number of shares available in the market, which can often be seen as a positive indication. Typically, this can happen due to share buybacks, which often signal management's confidence in the company's prospects and can contribute to enhancing shareholder value. Over the last 20 years, it's notable that the outstanding shares have seen fluctuations, including periods of rapid increases and decreases. Based on this criterion alone, because the shares outstanding decreased, CVS Health scores 1 point.

Operating of CVS Health (CVS)

Cross Margin is growing?

The change in gross margin criterion evaluates the improvement in profit efficiency. A higher gross margin indicates that a company is retaining more revenue after incurring the direct costs associated with producing its goods or services, making it crucial to assess for profitability trends.

Historical gross margin of CVS Health (CVS)

Comparing CVS Health's gross margin of 0.1521 in 2023 to 0.169 in 2022 shows a decrease, resulting in a score of 0 for this criterion. Over the past 20 years, CVS Health's gross margin has generally decreased from 0.2581 in 2003 to 0.1521 in 2023. Meanwhile, the industry median gross margin also displays significant fluctuations but remains at a lower level, declining from 0.2145 in 2003 to 0.1124 in 2023. This trend underscores a reduction in profitability for CVS relative to direct costs of production, reflecting competitive or strategic pressures and potentially signaling inefficiencies or higher operating costs.

Asset Turnover Ratio is growing?

Asset turnover is a financial ratio that measures the efficiency of a company's use of its assets to generate sales revenue. It is important as it indicates how well the assets of a company are being used to produce revenue.

Historical asset turnover ratio of CVS Health (CVS)

The Asset Turnover for CVS Health (CVS) increased from 1.3982 in 2022 to 1.497 in 2023, indicating a positive trend. Over the last 20 years, we can observe that the Asset Turnover has fluctuated significantly, peaking at 2.634 in 2003 and hitting its lowest point at 1.1859 in 2020. The recent increase suggests that CVS has improved its efficiency in using its assets to generate sales revenue, which is a favorable development for the company. This trend garners a 1 point in the Piotroski Analysis, reflecting an enhancement in operational efficiency.


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