Four Stocks With Solid Interest Coverage Ratio That Deserve Your Attention

Understanding Interest Coverage Ratio: The Foundation

When evaluating investment opportunities, most investors fixate on surface-level metrics—quarterly earnings surprises and year-over-year revenue growth. Yet these measures alone paint an incomplete picture. True financial health requires examining a company’s capacity to meet its debt obligations, a dimension often overlooked by casual market observers.

The Interest Coverage Ratio, calculated as Earnings before Interest and Taxes (EBIT) divided by Interest Expense, serves as a barometer for financial resilience. This metric reveals how many times over a company can cover its interest payments using operating profits. A ratio below 1.0 signals distress—the company cannot generate sufficient earnings to service its debt. Conversely, a robust ratio indicates the firm maintains a healthy safety margin and can weather economic downturns without defaulting.

Companies carrying strong interest coverage ratios demonstrate they are not over-leveraged and maintain operational stability. This distinction matters significantly for long-term wealth accumulation, as financially stable firms outperform those with deteriorating debt servicing capabilities.

The Screening Framework: What Separates Winners from Average Performers

Beyond merely calculating the Interest Coverage Ratio, a comprehensive screening approach combines multiple criteria:

• Interest Coverage Ratio exceeding industry median: Financial strength above peers
• Price floor of $5 or higher: Institutional-grade stocks with meaningful liquidity
• Historical and projected EPS growth above industry average: Demonstrated and anticipated profitability expansion
• 20-day trading volume exceeding 100,000 shares: Adequate liquidity for portfolio entry and exit
• Zacks Rank of #1 (Strong Buy) or #2 (Buy): Analyst consensus favoring outperformance
• VGM Score of A or B: Complementary valuation and growth assessment

This multi-factor approach filters for companies with both improving fundamentals and market momentum.

Four Candidates Meeting Rigorous Standards

Amazon.com, Inc. (AMZN), the global technology and e-commerce behemoth, qualifies with a Zacks Rank #2 and VGM Score of B. The company demonstrates impressive earnings execution, with a 22.5% trailing four-quarter earnings surprise on average. Consensus estimates project current fiscal-year sales growth of 12% and earnings per share expansion of 29.7% year-over-year. AMZN has appreciated 5.3% over the trailing twelve months, reflecting steady investor confidence in its interest coverage positioning.

Stride, Inc. (LRN), an education technology firm, carries identical quality signals: Zacks Rank #2 and VGM Score of B. The company averages 12.1% in trailing four-quarter earnings surprises. Analysts project modest current fiscal-year growth of 4.6% in sales and 3.1% in earnings per share. Despite strong operational metrics, LRN has declined 38.8% over the past year, potentially creating a contrarian opportunity for those convinced of its interest coverage resilience.

Brinker International, Inc. (EAT), a prominent casual dining operator, ranks #2 at Zacks with an elevated VGM Score of A. The company has posted 18.7% average earnings surprises over trailing quarters. Forward guidance suggests current fiscal-year sales expansion of 6.5% and earnings per share growth of 14.9%. EAT has advanced 15.7% annually, benefiting from consumer discretionary recovery and strong interest coverage ratios.

Cardinal Health, Inc. (CAH), a multinational pharmaceutical distributor and medical-products manufacturer, presents Zacks Rank #2 with VGM Score of A. CAH averages 9.4% in quarterly earnings surprises. Consensus calls for current-year sales growth of 16.3% and earnings per share growth of 20%, outpacing broader healthcare indices. The stock has surged 69.1% over the past year, driven by operational leverage and investors’ recognition of its fortified balance sheet and interest coverage strength.

The Takeaway

An elevated Interest Coverage Ratio signals financial prudence and operational stability. Combined with Zacks Rank confirmations and favorable valuation scores, these four companies exemplify stocks worthy of portfolio consideration for investors prioritizing durable cash flow generation and debt servicing capability.