Last update on 2024-06-06

Illumina (ILMN) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Illumina (ILMN) 2023 Piotroski F-Score Analysis, final score 5/9. Aimed at assessing profitability, liquidity, and efficiency using Piotroski's 9-criteria model.

Short Analysis - Piotroski Score: 5

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

The Piotroski F-Score is a system that rates a company's financial health on a scale from 0 to 9 using nine criteria related to profitability, liquidity, and operating efficiency. Illumina (ILMN) was evaluated with this system and scored a 5 out of 9. Examining profitability, the company had a negative net income in 2023 but showed a positive cash flow from operations. It also had a negative but improving Return on Assets (ROA) and higher operating cash flow than net income, earning points in these areas. In terms of liquidity, although the company’s leverage increased, its current ratio improved, signifying better short-term liquidity. For shares dilution, the number of outstanding shares slightly increased. Looking at operational efficiency, Illumina had a decreased gross margin but a higher asset turnover ratio compared to the previous year. Overall, the analysis presents a mixed financial health profile for Illumina.

Insights for Value Investors Seeking Stable Income

Illumina does appear to have some strengths like positive operational cash flow and an improving asset turnover ratio. However, the company also has some notable weaknesses, such as a negative net income and increased leverage. A Piotroski Score of 5 suggests that Illumina falls into a moderate category for financial health, neither particularly strong nor particularly weak. For investors, this means caution should be exercised. Look deeper into the company’s financials and future growth prospects before making an investment decision.

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

Profitability of Illumina (ILMN)

Company has a positive net income?

Net income indicates a company's overall profitability after accounting for all expenses. It's critical as it reflects financial health.

Illumina (ILMN) reported a net income of -$1.161 billion in 2023, signaling a negative net income. Historically, Illumina has experienced fluctuating net income, showing profitability peaks, such as $1.002 billion in 2019 and severe dips, notably a substantial loss of -$4.404 billion in 2022. This trend highlights financial volatility, raising concerns about consistent profitability.

Company has a positive cash flow?

Cash Flow from Operations (CFO) is a vital indicator used to measure the cash generated by a company's regular operational activities. It reveals the financial health and efficiency of the core business.

Illumina's CFO for 2023 stands at $478 million, which is positive. This places the company in a favorable position when evaluated based on this criteria, attributing 1 point to Illumina's score. Viewing the 20-year historical data, the CFO has primarily been on an upward trajectory since 2003, marking steadily positive values since 2006. It indicates consistent operational efficiency and financial robustness, even though there was a decline in 2021 ($545 million) and 2022 ($392 million) followed by a recovery in 2023 ($478 million). The positive CFO for 2023 suggests improved cash generation capabilities, presenting a good trend for the company.

Return on Assets (ROA) are growing?

The Return on Assets (ROA) measures how effectively a company uses its assets to generate profit. A higher ROA indicates more efficient use of company assets.

In 2022, Illumina's (ILMN) ROA was a disappointing -0.3207, reflecting significant inefficiency in asset utilization. Fast forward to 2023, and there is substantial improvement with an ROA of -0.1038. While still negative, this pronounced enhancement signals better utilization of assets and movement toward profitability. Industry context further emphasizes this trend. Over the past 20 years, industry median ROA typically hovered positively around 0.4344 to 0.5234. This frames ILMN's latest ROA improvement as a step in aligning with broader industry performance standards. Given these figures, we award Illumina 1 point for the improvement in ROA.

Operating Cashflow are higher than Netincome?

Compare the company's Operating Cash Flow with its Net Income for the given period. This measures the quality of earnings, with higher cash flow potentially indicating more sustainable financial operations.

In 2023, Illumina's Operating Cash Flow was $478 million, significantly higher than its Net Income of -$1,161 million. This positive cash flow in spite of the reported net loss suggests that the company has strong operational cash management and potential issues might be related to non-cash charges or one-offs. Given the historical data, this trend has been relatively consistent, marking a reliable performance in cash generation compared to net profitability, hence adding 1 point for this criterion. Good financial health indicators are stability and predictability in future cash flows.

Liquidity of Illumina (ILMN)

Leverage is declining?

Change in Leverage refers to the fluctuation in a company's debt levels over time, relative to its equity.

In 2022, Illumina's leverage was 0.1821, and in 2023 it increased to 0.2152. This rise in leverage indicates that the company has taken on additional debt relative to its equity. While leverage can fuel growth if used wisely, an increase, as observed here, also heightens the company’s financial risk. Given this rise in leverage, Illumina does not score a point on this Piotroski criterion.

Current Ratio is growing?

Change in Current Ratio compares the liquidity and short-term debt-paying ability of a company between two periods.

The Current Ratio for Illumina (ILMN) increased from 1.2842 in 2022 to 1.6618 in 2023. This indicates an improvement in the company’s short-term liquidity position, bringing it closer to the industry's median ratio of 2.3682. Historically, the company has seen much higher ratios, such as 6.6932 in 2019 and values above 5 earlier in 2010 and 2011. The decline starting from 2020 was sharp, but the latest figures show a positive rebound. This is a good trend because it implies a better ability to cover short-term obligations. Consequently, ILMN earns 1 point for this criterion.

Number of shares not diluted?

Shares outstanding refer to the total shares of a company that are currently owned by all its shareholders, including blocks held by institutional investors and restricted shares owned by the company's officers and insiders. A reduction in shares outstanding typically indicates share buybacks, which can be a positive signal to investors as it suggests the company believes its shares are undervalued.

Illumina's shares outstanding have increased from 157 million in 2022 to 158 million in 2023, indicating a 0.64% rise. This is a deviation from the typical positive signal investors look for, which is a reduction in outstanding shares as it can indicate strategic buybacks. The longitudinal data from the past 20 years shows a general uptrend in shares outstanding, from 63.85 million in 2003 to 158 million in 2023, reflecting the company's periodic equity raises for expansion and investment. The notable point here is Illumina has pursued various growth initiatives over the years, requiring capital, which aligns with the increase in shares outstanding. Therefore, for this criterion, we assign a score of 0.

Operating of Illumina (ILMN)

Cross Margin is growing?

The criterion examines the change in gross margin year-over-year. A higher gross margin indicates improved profitability.

Illumina's Gross Margin in 2023 of 0.6092 has decreased from 0.6483 in 2022. This represents a decline, which is not favorable as it indicates a reduction in the margin by which sales revenue exceeds production costs. Over the last 20 years, the gross margin shows fluctuations with a peak around 2015 (0.698) declining thereafter. Even accounting for variations, 2023's figure is lower than the industry median of 0.504, indicating that although Illumina's gross margin remains strong relative to peers, the recent downward trend is concerning. Therefore, for the Piotroski Analysis, this criterion scores 0 points as the Gross Margin has decreased.

Asset Turnover Ratio is growing?

Asset Turnover measures a company's efficiency in using its assets to generate sales revenue, a critical metric in financial analysis.

From the data provided, Illumina's Asset Turnover ratio has increased from 0.3338 in 2022 to 0.4028 in 2023. This represents an improvement in the efficiency with which the company is utilizing its assets to generate revenue. Historically, Illumina has seen fluctuation in this metric, reaching as high as 0.9202 in 2006, and as low as 0.2535 in 2003. The current trend suggests a positive shift, indicating better management and utilization of assets in 2023 compared to the previous year. Therefore, under the Piotroski F-Score metric, Illumina would receive 1 point for this criterion.