Yahoo Finance Buy These 4 Stocks With Remarkable Interest Coverage Ratio
Given the current scenario, investors should gauge the changing market dynamics and accordingly chalk out a sturdy investment strategy. Well, you can decide to buy or sell a particular stock by looking at its sales and earnings numbers. However, such a strategy does not always warrant superior returns when the market faces a myriad of issues. A critical analysis of the company’s financial background is always required for a better investment decision.
Indeed, a company should be sound enough to meet its financial obligations. This can be judged with coverage ratios — the higher these are, the more efficient an enterprise will be in meeting its financial obligations. Here, we have discussed one such ratio called the interest coverage ratio.
Interest Coverage Ratio = Earnings before Interest & Taxes (EBIT) divided by Interest Expense.
Tenet Healthcare Corporation THC, Sterling Infrastructure, Inc. STRL, Atmos Energy Corporation ATO and Cabot Corporation CBT are four stocks with an impressive interest coverage ratio.
Why Interest Coverage Ratio?
The interest coverage ratio is used to determine how effectively a company can pay the interest charged on its debt.
Debt, which is crucial for most companies to finance operations, comes at a cost called interest. Interest expense has a direct bearing on a company's profits. The company’s creditworthiness depends on how effectively it meets its interest obligations. Therefore, the interest coverage ratio is one of the essential criteria to factor in before making any investment decision.
The interest coverage ratio suggests the number of times interest could be paid from earnings and also gauges the margin of safety a firm carries for paying interest.
An interest coverage ratio lower than 1.0 implies that the company is unable to fulfill its interest obligations and could default on repaying debt. A company that is capable of generating earnings well above its interest expense can withstand financial hardship. One should also track the company’s past performance to determine whether the interest coverage ratio has improved or worsened over a period of time.
What’s the Strategy?
Apart from having an interest coverage ratio that is more than the industry average, adding a favorable Zacks Rank and a VGM Score of A or B to your search criteria should lead to better results.
Interest coverage ratio greater than X-Industry Median
Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.
5-Year Historical EPS Growth (%) greater than X-Industry Median: Stocks that have a strong EPS growth history.
Projected EPS Growth (%) greater than X-Industry Median: This is the projected EPS growth over the next three to five years. This shows that the stock has near-term earnings growth potential.
Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.
VGM Score of less than or equal to B: Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Here are four of the 12 stocks that qualified the screening:
Tenet Healthcare, a diversified healthcare services company, sports a Zacks Rank #1 and has a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Tenet Healthcare’s current financial year EPS suggests growth of 25.5% from a year ago. THC has a trailing four-quarter earnings surprise of 56.5%, on average. The stock has surged 78.4% in the past year.
Sterling Infrastructure, which is engaged in e-infrastructure, transportation and building solutions, carries a Zacks Rank #2 and has a VGM Score of A.
The Zacks Consensus Estimate for Sterling Infrastructure’s current financial year EPS suggests growth of 18.6% from a year ago. STRL has a trailing four-quarter earnings surprise of 22.3%, on average. The stock has surged 123.6% in the past year.
Atmos Energy, engaged in regulated natural gas distribution and pipeline and storage businesses, carries a Zacks Rank #2 and has a VGM Score of B.
The Zacks Consensus Estimate for Atmos Energy’s current financial year sales and EPS suggests growth of 10.1% and 9.2%, respectively, from the year-ago period. ATO has a trailing four-quarter earnings surprise of 3.3%, on average. The stock has fallen 1.1% in the past year.
Cabot, a global specialty chemicals and performance materials company, carries a Zacks Rank #2 and has a VGM Score of A.
The Zacks Consensus Estimate for Cabot’s current financial year sales and EPS suggests growth of 1.9% and 26%, respectively, from the year-ago period. CBT has a trailing four-quarter earnings surprise of 3.8%, on average. The stock has rallied 34.6% in the past year.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
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Tenet Healthcare Corporation (THC) : Free Stock Analysis Report
Atmos Energy Corporation (ATO) : Free Stock Analysis Report
Cabot Corporation (CBT) : Free Stock Analysis Report
Sterling Infrastructure, Inc. (STRL) : Free Stock Analysis Report
