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Upgrades & Downgrades: Working on the Railroads


Maybe the experts know something we don't know.

Stocks stalled after a solid start and ended mixed following the Fed's announcement on interest rates, with the Dow (-0.1%) and S&P 500 Index (+0.1%) staggering to a split decision. The Nasdaq had earlier reached a fresh 52-week high as the market began brightly, boosted by a benign reading on inflation. (That the Consumer Price Index remains under control was especially welcome for the family that this week returned a library book a century overdue.) NetEase (NTES), up 1.65% on upbeat analyst comments, faired far better than striptease, Playboy (PLA) plunging 9.9% on reports takeover talks are over.

Jimmy Hoffa wrote a letter to Goldman's (GS) head honcho and extended an offer which he may find hard to refuse. While it is to be hoped no one sleeps with the fishes once the episode ends, the unusual activity in McCormick & Schmicks Seafood Restaurants (MSSR), which skyrocketed 14.85%, is alarming. Incidentally, there is no sign of Goldman's woes ending this morning, as Meredith Whitney just cut estimates on both it and Morgan Stanley (MS). Brian Moynihan was named to the top job at Bank of America (BAC), shattering the glass ceiling just as Glass-Steagall may considerably complicate his task. In 8:30AM Eastern economic data, initial unemployment claims surprisingly rose 7,000 to 480,000. The Conference Board's index of October leading indicators at 10:00AM is projected to rise 0.7% and the Philadelphia Fed, out at the same time, is forecast to fall. Expect earnings out of Darden Restaurants (DRI), FedEx (FDX), General Mills (GIS), Nike (NKE), Oracle (ORCL), Pier 1 (PIR), Research in Motion (RIMM) (see also Research In Motion's Margins Are Moving in the Wrong Direction), and Rite Aid (RAD).


Railroad Sector: Wells Fargo initiates the railroad sector with a Market Weight as overall valuations are attractive although not compelling. Outperforms are assigned on Kansas City Southern (KSU) and Union Pacific (UNP), while CSX Corp (CSX) and Norfolk Southern (NSC) are each at Market Perform.

Bank of America (BAC): The bank is begun at Buy at UBS.

HSBC Holdings (HBC): Nomura now has Buy rated coverage on HSBC Holdings.

Fiserv (FISV): The stock is resumed at Outperform by Credit Suisse, which sets a target price of $55. The broker believes Fiserv will be able to achieve solid margin expansion for the foreseeable future.

SunPower (SPWRA): The solar stock is started with a Buy and price objective of $32 at Needham, which sees it as the best positioned stock in the growing US market.

Lear Corp. (LEA): UBS assumes coverage on Lear Corp (Buy; $77 target).

Shutterfly (SFLY): Roth Capital starts Shutterfly with a Buy and $23 target based on an increase in domestic broadband penetration.

Allergan (AGN): Frozen smiles all round at Allergan, the Botox maker initiated at Buy by Brean Murray.

Intrepid Potash (IPI): The stock is picked up at a Hold by KeyBanc Capital, which sees risk/reward as being in reasonable balance at current levels.

Southern Co. (SO): Soleil Securities starts Southern Co at a Buy.

PNC Financial (PNC): The stock is initiated with a Overweight at JP Morgan.

Supermarkets: Bank of America/Merrill Lynch resumes Neutrals on supermarket stocks Safeway (SWY) ($24 target) and Kroger (KR) ($22 target).

Forest Labs (FRX): Oppenheimer initiates Forest Labs at Outperform and sets a $40 target as upside from current levels is seen as significant.

Pharmaceutical Stocks: Jefferies initiates Amylin (AMLN), Auxilium (AUXL) (Both Buys), and Arena Pharmaceuticals (ARNA) (Hold). For more on the sector, see Gilead Sciences and Its Acquired Problems.

Telecom: Deutsche Bank initiates coverage on US Telecom Services with Buys on Qwest (Q) and Verizon (VZ) and Holds for AT&T (T) and Sprint Nextel (S) ($4.40 target).


News Corp (NWS): The stock gets its second upgrade of the week, now Neutral from Sell at Pali Research. Among other factors, Avatar is anticipated to generate great buzz for the Fox film division.

Lincoln National (LNC): Morgan Stanley boosts Lincoln National to Overweight from Equal Weight.

Mohawk Industries (MHK): The stock is trading higher before the bell after getting an Overweight-from-Neutral upgrade at JP Morgan, which takes its target up $16.50 to $53.50.

Mariner Energy (ME): The stock is upgraded to Outperform from Market Perform by BMO Capital Markets with a $15 price target.

CA Inc. (CA): CA is up before the open after Jefferies increased it to Buy from Hold as December expectations appear low.


Harley-Davidson (HOG): The stock gets lowered to Sell from Neutral at Goldman Sachs, which also adds the stock to its Conviction Sell List.

Comcast (CMCSA): The cable provider is cut from the Top Picks Live list at Citigroup due to a low probability of material incremental returns of capital. See also Why Networks Struggle Even as More Watch TV.

OSI Pharmaceuticals (OSIP): The pharma company is downgraded to Hold from Buy at Lazard.

First Solar (FSLR): FSLR is reduced to Outperform from Strong Buy at Raymond James.

Automatic Data Processing (ADP): Janney Montgomery Scott downgrades Automatic Data Processing(Neutral from Buy).

Alberto-Culver (ACV): Morgan Stanley moves Alberto-Culver to Equal Weight from Overweight.
No positions in stocks mentioned.
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