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Zacks.com Featured Highlights: KB Home, Southwest Airlines, Huntington Ingalls Industries, Time Warner And Carnival

Published 07/17/2017, 09:30 PM
Updated 07/09/2023, 06:31 AM

For Immediate Release

Chicago, IL – July 18, 2017 - Stocks in this week’s article include KB Home (NYSE: KBH Free Report ), Southwest Airlines Co. (NYSE: LUV Free Report ), Huntington Ingalls Industries, Inc. (NYSE: HII Free Report ), Time Warner Inc (NYSE:TWX). (NYSE: TWX Free Report ) and Carnival (LON:CCL) Corporation (NYSE: CCL Free Report ).

Screen of the Week of Zacks Investment Research:

Buy 5 Stocks with Impressive Interest Coverage Ratio

We often judge a company on the basis of its sales and earnings numbers. These, however, may not be enough. Sometimes, a stock gets a boost if these numbers climb year over year or surpass estimates in a particular quarter. This will definitely be a great opportunity for a short horizon investor to cash in on. But if you seek long-term returns, investments backed only by sales and earnings numbers may not yield the desired results.

A critical analysis of a company’s financial background is a prerequisite for an informed investment decision. Here, coverage ratios that determine whether a company is sound enough to meet its financial obligations play a crucial role. The higher the ratio, the better it is. The focus of this article is on “Interest Coverage”, which is one such ratio.

Interest Coverage Ratio = Earnings before Interest & Taxes (EBIT) divided by Interest Expense .

Why Interest Coverage Ratio?

Interest Coverage Ratio is used to determine how effectively a company can pay the interest charges on its debt.

Debt, which is crucial for most of the companies to finance operations, comes at a cost called interest. Interest expense has a direct bearing on the profitability of a company and its creditworthiness depends on how effectively it meets interest obligations. Therefore, Interest Coverage Ratio is one of the important criteria to factor in before making any investment decision.

Interest Coverage Ratio suggests the number of times the 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 hardships. Definitely, 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.

The Winning 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 five of the 19 stocks that qualified the screening:

KB Home (NYSE:KBH Free Report ), which operates as a homebuilding company, has a VGM score of “A” and an expected EPS growth rate of 16.7% for 3–5 years. The stock currently flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here .

Southwest Airlines Co. (NYSE:LUV Free Report ), which operates a passenger airline, has a VGM score of “A” and an expected EPS growth rate of 10.2% for 3–5 years. The stock currently sports a Zacks Rank #1.

Huntington Ingalls Industries, Inc. (NYSE:HII Free Report ), which is engaged in the designing, building, overhauling and repairing of ships, has a VGM score of “B” and an expected EPS growth rate 15% for 3–5 years. The stock currently carries a Zacks Rank #2.

Time Warner Inc. (NYSE:TWX Free Report ), which operates as a media and entertainment company, has a VGM score of “A” with an expected EPS growth rate of 9.5% for 3–5 years. The stock carries a Zacks Rank #2.

Carnival Corporation (NYSE:CCL Free Report ), a leisure travel and cruise company, has a Zacks Rank #2 and a VGM score of “A”. The expected EPS growth rate for 3–5 years is currently 14.0%.

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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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Sign up now for your free trial today and start picking better stocks immediately. And with the backtesting feature, you can test your ideas to see how you can improve your trading in both up markets and down markets. Don’t wait for the market to get better before you decide to do better. Start learning how to be a better trader today: https://at.zacks.com/?id=111

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.

About Screen of the Week

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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer .

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.



KB Home (KBH): Free Stock Analysis Report

Southwest Airlines Company (NYSE:LUV): Free Stock Analysis Report

Huntington Ingalls Industries, Inc. (HII): Free Stock Analysis Report

Time Warner Inc. (TWX): Free Stock Analysis Report

Carnival Corporation (CCL): Free Stock Analysis Report

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