Ratings Changes: Arch Capital, Norfolk

TheStreet.com Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking total return performance.

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

The model upgraded Oriental Financial Group ( OFG) to "hold." The company provides financial products and services in Florida and Puerto Rico.

The numbers: Second-quarter revenue increased 40% to $128 million as earnings tripled to $51 million, or $2.04 a share. The operating margin more than doubled to 52% and the net margin increased from 16% to 40%. The company has a strong cash balance, with $307 million of reserves. But a $4.2 billion debt load and a debt-to-equity ratio of 11.7 indicate excessive leverage.

The stock: Oriental Financial is up 95% this year, outperforming major U.S. indices. The stock trades at a cheap price-to-earnings ratio of 10 and offers a lackluster 1.4% dividend yield.

The model downgraded the bank holding company Park National ( PRK) to "hold."

The numbers: Second-quarter revenue increased 2% to $119 million. Net income rose 17% to $21 million and earnings per share jumped 9% to $1.42. The operating margin remained impressive at 41% and the net margin climbed from 16% to 18%. The company has a strong cash position, as reflected by $131 million of reserves. Although the company has cut its debt 28% to $1.2 billion from the year-earlier period, a debt-to-equity ratio of 1.8 indicates high leverage.

The stock: Park National has declined 28% in 2009, underperforming the Dow and S&P 500. The stock trades at an exorbitant price-to-earnings ratio of 75, but offers a 6.7% dividend yield.

The model upgraded Schiff Nutrition International ( WNI) to "buy." The company makes vitamins, supplements and nutrition bars.

The numbers: Fiscal third-quarter revenue ascended 8% to $50 million as net income fell 10% to $3.6 million and earnings per share fell 7% to 13 cents. The company's operating margin decreased from 13% to 10% and the net margin dropped from 9% to 7%. Schiff has an impressive cash hoard, with over $55 million of reserves, amounting to a quick ratio of 3.3. The company has little debt.

The stock: Schiff is flat in 2009, underperforming the Dow and S&P 500. The stock trades at a fair price-to-earnings ratio of 14 and doesn't pay dividends.

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