Ratings Changes: Arch Capital, Norfolk

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TheStreet.com's stock-rating model upgraded insurer Arch Capital Group(ACGL Quote) to "buy."

The numbers: First-quarter revenue decreased 13% to $760 million as net income declined 25% to $146 million. Earnings per share fell 19% to $2.24 because of a lower share count. The operating margin dropped from 29% to 19% and the net margin fell from 22% to 19%. The company has an ideal financial position, with over $1.2 billion of cash reserves and just $400 million of debt. We give Arch a financial strength score of 8.5 out of 10.

The stock: Arch is down 10% this year, underperforming the Dow Jones Industrial Average and the S&P 500 Index. The stock trades at an expensive price-to-earnings ratio of 20. The company doesn't pay dividends.

The model upgraded Norfolk Southern(NSC Quote) to "buy." The railroad operator transports freight by train.

The numbers: First-quarter revenue declined 22% to $1.9 billion as net income dropped 39% to $177 million. Earnings per share fell 38% to 47 cents, helped by a lower share count. The operating margin decreased from 24% to 20% and the net margin fell from 12% to 9%. A quick ratio of 0.9 indicates a less-than-ideal liquidity position. But Norfolk Southern has more than doubled its cash reserves to $884 million from the year-ago quarter. And a debt-to-equity ratio of 0.7 demonstrates reasonable leverage.

The stock: Norfolk Southern has climbed 19% this year, outperforming the Dow and S&P 500. The stock trades at a cheap price-to-earnings ratio of 10 and offers an attractive 3.1% dividend yield.