Ratings Changes: First Commonwealth, RLI

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.

BOSTON ( TheStreet) -- TheStreet.com's stock-rating model downgraded First Commonwealth Financial ( FCF), a bank in Pennsylvania, to "sell."

The numbers: Second-quarter revenue dropped 16% to $80 million as the bank swung to a net loss of $19 million, or 22 cents per share, from a profit of $13 million, or 18 cents per share, in the year-earlier period. The company set aside $42 million for loan losses during the quarter. Its operating and net margins sank into deep negative territory, while its cash decreased 17% to $85 million from a year earlier.

The stock: First Commonwealth is down 48% this year, lagging major U.S. indices. The stock offers a lackluster 1.9% dividend yield.

The model upgraded casualty and property insurer RLI ( RLI) to "buy."

The numbers: Second-quarter revenue declined 10% to $145 million as net income fell 12% to $34 million and earnings per share dropped 11% to $1.57. Its operating margin fell from 34% to 31%, but its net margin remained strong at 24%. RLI has nearly tripled its cash balance to $184 million from the year-earlier quarter. And a debt-to-equity ratio of 0.1 indicates a modest debt load.

The stock: RLI has fallen 20% this year, trailing major U.S. indices. The stock trades at an expensive price-to-earnings ratio of 23, but offers a dividend yield of 2.2%. Our model gives RLI a financial strength score of 7.9 out of 10, which is significantly higher than its peers.

The model upgraded reinsurer RenaissanceRe Holdings ( RNR) to "buy."

The numbers: Second-quarter revenue increased 9% to $507 million as net income surged 93% to $282 million. Earnings per share doubled to $4.32, helped by a lower share count. Its operating margin climbed from 47% to 66% and its net margin expanded from 37% to 55%. The cash cupboard is stocked with $1.3 billion. A debt-to-equity ratio of 0.2 indicates restrained leverage.

The stock: RenaissanceRe is down 2% this year, underperforming major U.S. indices. After posting losses in last year's third and fourth quarters, the company generated two quarters of profits. The stock offers an uninspiring 1.9% dividend yield.

The model upgraded chemical producer RPM International ( RPM) to "buy."

The numbers: Fiscal fourth-quarter revenue dropped 20% to $857 million. The company swung to a profit of $39 million, or 31 cents, from a loss of $88 million, or 73 cents, in the year-earlier period. The operating margin fell from 13% to 12%, but the net margin climbed out of negative territory, rising to 5%. A quick ratio of 1.1 reflects strong liquidity. And a debt-to-equity ratio of 0.8 indicates reasonable leverage.

The stock: RPM is up 18% this year, outpacing the Dow Jones Industrial Average and S&P 500 Index. The stock trades at a fair price-to-earnings ratio of 17 and offers a 5.1% dividend yield, which is higher than the S&P 500 average.

The model upgraded waste and recycling collector Waste Connections ( WCN) to "buy."

The numbers: Second-quarter revenue increased 13% to $303 million as net income increased 19% to $30 million. Earnings per share were flat at 38 cents, reflecting a significantly higher share count. Its operating margin dropped from 21% to 10%, but the net margin rose to 10%. A quick ratio of 0.7 indicates a less-than-ideal liquidity position. But a debt-to-equity ratio of 0.7 reflects a sound capital structure.

The stock: Waste Connections has fallen 9% this year, underperforming major U.S. indices. The stock trades at an expensive price-to-earnings ratio of 20 and doesn't pay dividends.

-- Reported by Jake Lynch in Boston. Feedback can be sent to jake.lynch@thestreet.com.

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