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Last update on 2024-06-06

International Paper (IP) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

International Paper (IP) scored 5/9 in the 2023 Piotroski F-Score analysis, indicating moderate financial strength and stability.

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: 5

We're running International Paper (IP) 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?
0
Operating Cashflow are higher than Netincome?
1
Leverage is declining?
0
Current Ratio is growing?
1
Number of shares not diluted?
1
Cross Margin is growing?
0
Asset Turnover Ratio is growing?
0

International Paper (IP) was analyzed using the Piotroski F-Score criteria to assess its profitability, liquidity, and operating efficiency, scoring a total of 5 out of 9. Here are the key points: 1. **Profitability:** IP has a positive net income in 2023 ($288 million) and positive cash flow from operations ($1.83 billion). However, its Return on Assets (ROA) significantly decreased from 2022, signaling reduced efficiency. 2. **Liquidity:** There's a positive increase in IP's current ratio, but leverage (debt dependence) has also increased, raising financial risk. 3. **Operating Efficiency:** IP's operating cash flow is higher than its net income, and the number of outstanding shares has reduced, signaling strong core operations and confidence. However, gross margin and asset turnover are declining, indicating potential operational challenges.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski F-Score of 5, International Paper exhibits moderate financial health. The positives include strong cash flow and an improving current ratio. However, the declining ROA, increasing leverage, and diminishing operational metrics like gross margin and asset turnover suggest caution. As an investor, it's worth looking into IP further, especially to understand why certain profitability and efficiency metrics are declining. If you are risk-averse, you might want to wait and see if these issues resolve before investing. Those willing to take on more risk may find IP a potentially undervalued stock with room for improvement.

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

Profitability of International Paper (IP)

Company has a positive net income?

Net income is a company's total earnings after tax and expenses, and it's a key indicator of profitability.

Historical Net Income of International Paper (IP)

International Paper has reported a net income of $288 million for 2023, which is indeed positive. Historically, this figure is relatively lower compared to some other years, such as 2017 when net income was $2.14 billion or even 2022 with $1.5 billion. Despite the notable decline, the positive figure does warrant a Piotroski score of 1 for the net income criterion. In consistency over the last 20 years, the net income has generally been positive except for a few down years like 2008, in which IP posted a net loss of $1.28 billion. The positive net income in 2023 will add 1 point to the total score, supporting the company's overall profitability analysis.

Company has a positive cash flow?

This criterion examines whether the company's cash flow from operations is positive. A positive CFO indicates that a company is generating more cash than it is using, which is a sign of financial health.

Historical Operating Cash Flow of International Paper (IP)

For the year 2023, International Paper's CFO stands at $1.83 billion, which is positive. Thus, according to this criterion, International Paper (IP) scores 1 point. Historical data shows variability in CFO, with certain peaks, such as $4.65 billion in 2009 and a consistent performance above $3 billion from 2011 to 2014. In recent years, the CFO has steadied around the $2 billion mark. The positive CFO in 2023 reinforces a stable trajectory, though the lower value compared to earlier peaks indicates some challenges. Overall, the positive cash flow is a good indicator, though the trend merits closer scrutiny for potential declines in operational efficiency.

Return on Assets (ROA) are growing?

Change in ROA assesses the variation in a company's Return on Assets year-over-year. This indicates the operational efficiency in generating profits from its assets.

Historical change in Return on Assets (ROA) of International Paper (IP)

In 2023, International Paper (IP) exhibited an ROA of 0.0122 compared to 0.0612 in 2022. This substantial decline indicates a 0.049 decrease, which is unfavorable and signals a reduction in the company's efficiency in utilizing assets to generate profits. Thus, it translates to 0 points in this criterion. When contrasted against the industry's median ROA, with values ranging from 0.1807 to 0.2342 over the last 20 years, IP's current figure significantly underperforms, raising concerns about its operational competitiveness. Historically, IP's operating cash flow has fluctuated, peaking at 4655 million in 2009, but there is no apparent correlation with recent drops in ROA.

Operating Cashflow are higher than Netincome?

This metric compares operating cash flow to net income. It is crucial because it shows the actual cash generated by a company's core operations, stripping out non-cash earnings and adjusting for working capital changes.

Historical accruals of International Paper (IP)

In 2023, International Paper (IP) has an Operating Cash Flow of $1,833,000,000 compared to a Net Income of $288,000,000. Since the Operating Cash Flow is higher, it indicates strong cash flow generation from its core operations. Over the past 20 years, IP's operating cash flow has consistently exceeded net income in most years, affirming its robust cash-generating ability. This trend is positive and warrants a score of 1 for the Piotroski criterion.

Liquidity of International Paper (IP)

Leverage is declining?

The change in leverage measures the extent to which a company is using borrowed money. A decreasing leverage ratio indicates lower financial risk.

Historical leverage of International Paper (IP)

A review of International Paper's leverage ratio showcases a noticeable upwards trend, rising from 0.213 in 2022 to 0.2479 in 2023. This 16.4% increase suggests a growing reliance on debt financing. The long-term historical data spanning two decades shows this volatility in leverage trends, especially notable spikes around 2016 and dips prior to 2020. Despite prior periods of deleveraging, the current upward trend raises concerns about increasing financial vulnerability for the company.

Current Ratio is growing?

current ratio compares current assets to current liabilities

Historical Current Ratio of International Paper (IP)

On the basis of the given data, International Paper's (IP) current ratio has increased from 1.354 in 2022 to 1.6691 in 2023. This improvement is a positive signal, adding 1 point to the Piotroski score. The increase indicates an improvement in the company’s ability to cover its short-term liabilities with its short-term assets. This positive trajectory is supported by historical data, showcasing fluctuations but an overall manageable current ratio. Additionally, comparing to the industry median current ratio trend, which improved from 1.4663 in 2022 to 1.5762 in 2023, IP's standing is quite competitive.

Number of shares not diluted?

Change in Shares Outstanding examines whether a company is repurchasing its shares, signaling confidence. It's important for assessing shareholder value.

Historical outstanding shares of International Paper (IP)

For International Paper (IP), the outstanding shares decreased from 363,500,000 in 2022 to 346,900,000 in 2023. This reduction earns 1 point, indicating a share buyback which generally signals management's confidence in the company's future prospects and can indicate that shares are undervalued. Historically, IP has seen fluctuations in outstanding shares, but the recent trend shows a significant downtrend over the past few years, which bodes well for shareholders as it often increases the value of existing shares.

Operating of International Paper (IP)

Cross Margin is growing?

Change in Gross Margin compares the profitability of the company's core activities over two periods, reflecting operational efficiency.

Historical gross margin of International Paper (IP)

In 2023, International Paper (IP) reported a Gross Margin of 0.2795, down from 0.2844 in 2022. This decrease results in 0 points for this criterion. Over the past 20 years, IP's Gross Margin has varied significantly, peaking at 0.3486 in 2009 and hitting a low at 0.2452 in 2008. Despite the dip in recent years, the company's Gross Margin remains above the industry median, which was 0.222 in 2023, albeit down from its peak in 2019 (0.2477). This dip could indicate challenges in operational efficiency or increased costs, warranting further investigation.

Asset Turnover Ratio is growing?

Change in Asset Turnover assesses the efficiency of a company's use of its assets to generate sales, indicating operational effectiveness.

Historical asset turnover ratio of International Paper (IP)

Comparing International Paper's asset turnover ratios, there's a reduction from 0.8605 in 2022 to 0.8015 in 2023. This 6.86% decrease reflects a potential decline in operational efficiency, as the company generated fewer sales per dollar of assets in 2023. An asset turnover ratio falls because either sales have decreased, or total assets have increased without a proportionate increase in sales. Considering the entire 20 years, the asset turnover has seen fluctuations, peaking in 2008 at 0.9723 and dipping significantly to 0.5389 in 2020. However, the recent dip in 2023 is concerning and warrants attention; therefore, IP scores 0 point here.


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