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Last update on 2024-06-05

West Pharmaceutical Services (WST) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Analyze West Pharmaceutical Services (WST) using Piotroski F-Score, 2023. Focus on financial position's profitability, liquidity, and leverage. Score: 5/9.

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: 5

We're running West Pharmaceutical Services (WST) 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?
1
Current Ratio is growing?
0
Number of shares not diluted?
1
Cross Margin is growing?
0
Asset Turnover Ratio is growing?
0

We're analyzing the West Pharmaceutical Services (WST) stock using the Piotroski F-Score, which evaluates a company's financial health out of 9 criteria. The total score WST earned is 5 out of 9. The Piotroski F-Score looks at profitability, liquidity, and efficiency measures. The company shows positive net income ($593.4M) and positive cash flow ($776.5M), both increasing over time. Its leverage is decreasing, and it has managed to reduce shares outstanding. However, ROA, current ratio, gross margin, and asset turnover have all declined, indicating some areas of concern.

Insights for Value Investors Seeking Stable Income

With a Piotroski F-Score of 5, West Pharmaceutical Services (WST) has an average financial health rating. The company demonstrates considerable strengths in cash flow generation and debt management but shows weaknesses in operational efficiency and short-term financial health. As an investor, you might want to consider further investigating WST's operational issues and competitive position before making investment decisions. This stock may be appealing if you prioritize strong cash flow and low leverage, but be cautious of its declining operational metrics.

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

Profitability of West Pharmaceutical Services (WST)

Company has a positive net income?

Net income is a good indicator of a company's financial health, reflecting profitability.

Historical Net Income of West Pharmaceutical Services (WST)

The net income for West Pharmaceutical Services (WST) in 2023 is $593.4 million. This figure is positive and shows a consistent upward trajectory from earlier years, except for a dip in 2022 ($585.9 million from $661.8 million in 2021), but this upward movement resumes in 2023. This positive net income adds 1 point to the Piotroski Score for WST.

Company has a positive cash flow?

Cash Flow from Operations (CFO) indicates the cash a company generates from its core business activities. It is a critical measure of a company's operational efficiency and financial health.

Historical Operating Cash Flow of West Pharmaceutical Services (WST)

For West Pharmaceutical Services (WST), the Cash Flow from Operations (CFO) in 2023 stands at $776.50 million. This is a positive figure, which demonstrates the company's ability to generate cash from its core operations. This trend is indeed favorable. Over the past 20 years, the company's CFO has consistently increased from $69.20 million in 2003 to its current level, showing a robust and upward trajectory. This consistent growth indicates strong operational efficiency and sound financial management. Given that CFO is positive, WST earns 1 point in this criterion. Attributes like these are essential as they suggest that the company is not reliant on external financing to maintain its operations.

Return on Assets (ROA) are growing?

Change in ROA as a criterion in the Piotroski analysis is used to measure the improvement in operational efficiency. It compares the current year's Return on Assets (ROA) to the previous year's ROA.

Historical change in Return on Assets (ROA) of West Pharmaceutical Services (WST)

For West Pharmaceutical Services (WST), the Return on Assets (ROA) declined from 0.1691 in 2022 to 0.1594 in 2023. This is a decrease of almost 0.01 points, indicating a slight drop in operational efficiency. While 0.1594 is still a respectable ROA, this downward trend can be concerning if it continues in subsequent years. When looking at the data over the last 20 years, WST's operating cash flow has been consistently growing, which indicates robust underlying business activities. However, when compared to the industry median ROA over the same period (ranging from 0.5037 to 0.5747), WST's ROA is considerably lower. This suggests that while the company is operating efficiently within its scope, it is lagging behind competitive benchmarks.

Operating Cashflow are higher than Netincome?

Operating Cash Flow higher than Net Income indicates strong earnings quality.

Historical accruals of West Pharmaceutical Services (WST)

In the fiscal year 2023, West Pharmaceutical Services (WST) reported an operating cash flow of $776.5 million and a net income of $593.4 million. Since the operating cash flow exceeds the net income, this criterion scores 1 point. Historically, WST has shown a robust upward trend in operating cash flow over the last two decades, growing from $69.2 million in 2003 to $776.5 million in 2023. This strongly suggests that the company has been effective in converting its earnings into cash, which is a healthy indicator of financial stability and operational efficiency. Typically, operating cash flow exceeding net income suggests that the earnings quality is high, as it reflects cash-generating capabilities not distorted by non-cash accounting items. The additional 20-year data corroborate this trend, further emphasizing the strength of WST’s earnings.

Liquidity of West Pharmaceutical Services (WST)

Leverage is declining?

Change in leverage evaluates the level of a company’s debts relative to its assets. Reducing leverage suggests improving financial health and better risk management.

Historical leverage of West Pharmaceutical Services (WST)

Comparing the leverage of 0.0829 in 2022 to 0.0411 in 2023 for West Pharmaceutical Services (WST), we observe a decrease in leverage, indicative of a reduction in debt levels relative to assets. This decline from 0.0829 to 0.0411 is positive, reflecting enhanced financial stability. Over the past 20 years, the leverage ratio has generally improved, showing a broad trend towards lower debt levels. Therefore, following the Piotroski F-Score methodology, WST earns a point for this criterion.

Current Ratio is growing?

Current Ratio compares a company's current assets to its current liabilities. A higher ratio indicates better short-term financial health.

Historical Current Ratio of West Pharmaceutical Services (WST)

For West Pharmaceutical Services (WST), the Current Ratio decreased from 3.6985 in 2022 to 2.8824 in 2023. This indicates a deterioration in the company's ability to cover its short-term liabilities with its short-term assets. This is considered a negative trend. In terms of the Piotroski analysis, since the Current Ratio has decreased, we assign 0 points. Historically, West Pharmaceutical Services has usually maintained a Current Ratio above the industry median. For most of the last 20 years, its Current Ratio was above the industry median of 2.3418 in 2023, except for a few instances like in 2011, 2015, and 2016, etc.

Number of shares not diluted?

Change in Shares Outstanding is a crucial metric as it indicates dilution; fewer shares outstanding mean higher value per share for existing investors.

Historical outstanding shares of West Pharmaceutical Services (WST)

West Pharmaceutical Services (WST) reported 74,300,000 shares outstanding in 2023 compared to 74,400,000 in 2022. This represents a decrease of 100,000 shares or approximately 0.13%. While the change is marginal, it reflects a slight buyback or reduction in shares outstanding, which is generally positive for shareholders as it can enhance value per share. Historically, WST has managed its share count prudently, as evidenced by the past 20 years' data, showing a fluctuating but generally cautious approach to equity management. Therefore, we add 1 point for this criterion.

Operating of West Pharmaceutical Services (WST)

Cross Margin is growing?

The change in Gross Margin indicates a company's operational efficiency in converting revenue into actual profits over time.

Historical gross margin of West Pharmaceutical Services (WST)

The Gross Margin for West Pharmaceutical Services (WST) was 0.3936 in 2022 and decreased to 0.3828 in 2023. This trend signifies a decrease, indicating potential challenges in operational efficiency compared to the previous year. Historically, the company has experienced fluctuations in its Gross Margin, as seen with a high of 0.4152 in 2021 and a low of 0.2753 in 2005. Despite these ups and downs, the Gross Margin of WST has generally been lower than the industry median, which was 0.5549 in 2023. Hence, for Piotroski Analysis, we allocate 0 points for this criterion.

Asset Turnover Ratio is growing?

Asset Turnover is a measure of a company's efficiency in using its assets to generate revenue. It indicates how well the company is leveraging its asset base.

Historical asset turnover ratio of West Pharmaceutical Services (WST)

For West Pharmaceutical Services (WST), the Asset Turnover ratio has decreased from 0.8331 in 2022 to 0.7923 in 2023, indicating a less efficient use of assets in generating revenues. This trend suggests a loss in efficiency, which is unfavorable from an operational performance perspective. Looking at the historical 20-year data, it's evident that WST's Asset Turnover ratio has generally been above 0.8, with a peak of 1.0487 in 2006 and lowest value of 0.7923 in 2023. Due to the decrease, WST receives 0 points for this criterion as the company's ability to turn assets into revenues deteriorated year-over-year.


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