EQR 67.19 (-0.75%)
US29476L1070REITsREIT - Residential

Last update on 2024-06-06

Equity Residential (EQR) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Explore Equity Residential (EQR) 2023 Piotroski F-Score analysis, revealing a solid financial performance with a final score of 6 out of 9.

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 Equity Residential (EQR) 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?
1
Current Ratio is growing?
0
Number of shares not diluted?
0
Cross Margin is growing?
0
Asset Turnover Ratio is growing?
1

The Piotroski F-Score is a system to gauge the financial health of companies based on nine criteria that cover profitability, liquidity, and operating efficiency. The score ranges from 0 to 9, with higher scores suggesting stronger financial performance. For Equity Residential (EQR), the analysis gives the company a score of 6 out of 9, indicating good financial health but with room for improvement. They are strong in profitability, with consistent positive net income and cash flow from operations. Although their Return on Assets (ROA) has grown, it lags behind industry medians. The Operating Cash Flow exceeding Net Income shows reliable cash-backed profits. On the liquidity side, they have reduced leverage, marking improved financial stability. However, a declining current ratio suggests problems meeting short-term obligations, and an increase in outstanding shares indicates potential dilution, negatively impacting investor value. In operating efficiency, the gross margin decreased, posing concerns over cost management while the asset turnover rate increased, reflecting better asset utilization to generate revenue.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski F-Score of 6, Equity Residential (EQR) appears to be a generally healthy and somewhat profitable company, making it worth considering for potential investment. However, prospective investors should be cautious of its lower current ratio and increase in outstanding shares, as these could impact liquidity and shareholder value. Evaluating how the company addresses these issues in the future could be pivotal in the decision-making process. Therefore, it might be worth exploring further, keeping a close eye on their financial maneuvers to enhance liquidity and shares management.

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

Profitability of Equity Residential (EQR)

Company has a positive net income?

Net income is a key indicator of a company's profitability, revealing whether it is making more money than it is spending.

Historical Net Income of Equity Residential (EQR)

Equity Residential (EQR) reported a net income of $835,438,000 in 2023, which is positive. Over the past 20 years, EQR has consistently generated positive net income, with notable growth spikes such as the $4,292,163,000 in 2016 and the $1,830,613,000 in 2013. This indicates a generally healthy and profitable business, thus earning a point for positive net income in the Piotroski Score.

Company has a positive cash flow?

Evaluating Cash Flow from Operations (CFO) provides insight into a company's ability to generate cash from its regular business activities, which is crucial for maintaining and expanding operations.

Historical Operating Cash Flow of Equity Residential (EQR)

For 2023, Equity Residential (EQR) reported a positive Cash Flow from Operations (CFO) of $1,532,798,000. This is a strong indicator of the company's ability to generate cash from its regular business activities. Historically, EQR has shown consistent positive CFOs over the last 20 years, with the latest figures showing a growth from $747,981,000 in 2003 to $1,532,798,000 in 2023. The increasing trend in CFO is a positive sign of the company’s financial health and its efficiency in converting revenue into actual cash, enabling it to effectively manage its operations and invest in growth opportunities.

Return on Assets (ROA) are growing?

Return on Assets (ROA) measures how effectively a company can generate profits from its assets. An increase in ROA indicates improved efficiency in asset utilization, contributing to overall profitability.

Historical change in Return on Assets (ROA) of Equity Residential (EQR)

The ROA for Equity Residential (EQR) increased from 0.0375 in 2022 to 0.0415 in 2023, indicating an improved efficiency in generating profits from its assets. This 0.004 increase is noteworthy as it not only hints towards better operational efficiency but also an enhanced profitability framework. Given that the industry median ROA was 0.5894 in 2023, EQR's ROA of 0.0415 is significantly lower. Although an improvement for EQR, it suggests the company remains well below the industry's best performers regarding asset utilization.

Operating Cashflow are higher than Netincome?

This criterion checks if the Operating Cash Flow (OCF) is higher than the Net Income (NI). A higher OCF compared to NI suggests earnings quality, indicating reliable, cash-backed profits.

Historical accruals of Equity Residential (EQR)

In 2023, Equity Residential (EQR) registered an Operating Cash Flow (OCF) of $1.53 billion and a Net Income (NI) of $835.44 million. Given that the OCF exceeds the NI—almost double—it merits a point in the Piotroski Analysis. This is a favorable trend, underscoring that EQR's profits are heavily backed by cash flow, mitigating risks of profit manipulation. Additionally, over the past 20 years, EQR's OCF has demonstrated a generally upward trajectory, from $748 million in 2003 to $1.53 billion in 2023. Such consistency is a hallmark of financial robustness.

Liquidity of Equity Residential (EQR)

Leverage is declining?

The change in leverage assesses how the company is managing its financial risk by comparing its debt relative to equity. A decrease in leverage suggests improved financial stability.

Historical leverage of Equity Residential (EQR)

Between 2022 and 2023, Equity Residential's leverage decreased from 0.3761 to 0.364. This indicates that the company reduced its reliance on debt, thus displaying improved financial stability. Historically, this trend aligns with a more conservative approach to leveraging, which is crucial for maintaining investor confidence. Despite the economic challenges, such a practice puts the company in a better position to handle financial downturns.

Current Ratio is growing?

The current ratio, calculated as current assets divided by current liabilities, gauges a company's ability to cover short-term liabilities with short-term assets. A higher ratio denotes better liquidity, which is vital for day-to-day operations and financial health.

Historical Current Ratio of Equity Residential (EQR)

While reviewing Equity Residential’s (EQR) current ratio, we observe a decline from 0.2555 in 2022 to 0.167 in 2023. This is an alarming downtrend indicating a reduction in the firm's capability to meet its short-term obligations. Historical data over the past two decades shows that EQR has had considerable fluctuations, with exceptionally high figures in early 2000s followed by periods of stability and decline. This recent dip places it significantly below the industry median of 0.5349 in 2023, suggesting a weaker position relative to its peers. The persistently low current ratio also highlights potential challenges in cash management. Hence, this criterion adds 0 points to the Piotroski score.

Number of shares not diluted?

Change in Shares Outstanding is an indicator of dilution or buybacks which can impact earnings per share and investor's value. A decrease typically signifies a positive trend as it suggests the company might be buying back shares, thereby potentially increasing shareholder value.

Historical outstanding shares of Equity Residential (EQR)

Based on the data provided, the Outstanding Shares of Equity Residential (EQR) increased from 376,209,000 in 2022 to 378,773,303 in 2023, signalling an increase over the period. Hence, for this criterion in the Piotroski Analysis, we add 0 points. Over the past 20 years, there has been a general increase in the number of Outstanding Shares, from 297,041,000 in 2003 to 378,773,303 in 2023, with some fluctuations. This overall trend indicates potential dilution which might not always be favorable for shareholders.

Operating of Equity Residential (EQR)

Cross Margin is growing?

The change in Gross Margin is an essential measure of a company’s efficiency and profitability. A stable or increasing gross margin signifies effective cost management and pricing strategy.

Historical gross margin of Equity Residential (EQR)

The Gross Margin for Equity Residential (EQR) decreased from 0.6408 in 2022 to 0.6359 in 2023. Given this decrease, we do not add 1 point as per the Piotroski Analysis criteria. Over the past 20 years, the Gross Margin of Equity Residential exhibits a significant variability, notably deviating beyond the industry median at several points. For example, in 2008, EQR’s Gross Margin was 70.55% compared to the industry median of 62.46%. Such discrepancies, along with the recent downward trend, might imply potential efficiency concerns or cost structure issues that the company needs to address attentively.

Asset Turnover Ratio is growing?

Asset Turnover measures a company's efficiency in using its assets to generate revenue. It is important because higher value indicates better performance.

Historical asset turnover ratio of Equity Residential (EQR)

The Asset Turnover ratio for 2023 stands at 0.1428 compared to 0.1322 in 2022, reflecting an increase. This is a positive trend as it demonstrates improved efficiency in asset usage to generate more revenue. Over the last 20 years, Equity Residential's Asset Turnover averages around 0.13, with a notable low in 2016 at 0.1106. The recent uptick is aligned with its historical performance, underscoring a comeback from the lower ratios observed in previous years. This 2023 increase adds 1 point.


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