Analyst Upgrades

• Barclays upgraded Schlumberger (SLB) to overweight from equal weight based on its deep management team, financial strength and increased exploration activity. The firm raised its target to $73 from $64.
• ThinkEquity upgraded SanDisk (SNDK) to buy from hold based on expectations for a solid 2010 with better NAND pricing trends, leaner channel inventories and lack of new fabs slated in 2010, among other reasons. The firm has a $35 target on the stock.
• Keefe Bruyette upgraded Pinnacle Financial (PNFP) to outperform from market perform, citing the company's strong management and balance sheet. The firm has a $16.50 price target on the stock.
• Watson Pharma (WPI) was raised to neutral from underperform at BofA/Merrill.
• New York Times (NYT) was upgraded to market perform from underperform at Wells Fargo.
• Tenet Healthcare (THC) was upgraded to outperform from market perform at Leerink.

Food stamps are pumping up revenue at retailers across the country. Costco (COST), Wal-Mart (WMT) and others are seeing rushes an hour before funds are credited to electronic benefits transfer cards. Wal-Mart's CFO, Tom Schoewe, has noted the trend, telling Reuters, "Once the clock strikes midnight [on the last day of the month] and EBT cards are charged, you can see our results start to tick up."

Spending via EBT is not only increasing, it generally happens quickly. JPMorgan (JPM), which runs EBT programs for more than 20 states, reports that buyers run through 85% of food stamp funds within the first three days of their availability.

Here are some highlights from this past week's earnings coverage on BloggingStocks:

• Advance Auto Parts Inc. (AAP) was downgraded due to concerns about its 2010 earnings outlook.
• Analogic Corp. (ALOG) received an analyst's downgrade after it reported weaker-than-expected earnings.
• AutoZone Inc. (AZO) strong Q1 results beat earnings expectations, but shares rose only a little.
• BWAY Holding Co. (BWY) received an analyst's upgrade following release of its Q4 results.
• Casey's General Stores Inc. (CASY) topped Q2 earnings estimates but lower revenue fell short.
• Ciena Corp. (CIEN) shares plummeted after it fell short of its earnings expectations for Q4.

The earnings season, like the calendar year, is winding down. The sprinkling of quarterly results scheduled for this coming week include S&P 500 components AutoZone (AZO), Ciena (CIEN), H&R Block (HRB) and National Semiconductor (NSM), as well as Dollar General (DG), Imperial Sugar (IPSU), Krispy Kreme Doughnuts (KKD), Men's Wearhouse (MW), Talbots (TLB) and others.

Analysts surveyed by Thomson Reuters expect to see strong year-over-year and sequential EPS growth from luxury watchmaker Movado Group Inc. (MOV). During its third quarter of fiscal 2010, this Paramus, N.J.-based company was recognized for its innovative use of technology and it reported a big profit decline for the second quarter.

Analyst upgrades:

• Pali Capital upgraded Lazard (LAZ) to buy from neutral, citing a healthy restructuring environment, improving M&A and strength in the asset management segment. The firm has a $46 target on shares.
• Baird upgraded Scansource (SCSC) to outperform from neutral, citing strength in the channel business and growth drivers from improved telephony and security. The firm has a $30 target on shares.
• Citigroup upgraded Liberty Interactive (LINTA) to buy from hold, citing the company's QVC unit's return to growth. The firm raised its target on shares to $13.25 from $12.
• Hess Corp (HES) was upgraded to overweight from equal weight at Morgan Stanley.
• Vulcan Materials (VMC) was upgraded to buy from neutral at UBS.
• Dillard's (DDS) was upgraded to buy from hold at Deutsche Bank.

Dollar General Store (DG) started as a wholesaler in 1939 and then became a retailer in 1955, when the company setup its first store. Since then, the company has grown rapidly. Now, Dollar General is the largest discount retailer in the U.S. -- that is, in terms of the number of stores (which is currently at 8,577).

A few years ago, Dollar General went private, with the backing of KKR, Citi (C), Goldman Sachs (GS), Wellington Management and the Canada Pension Plan Investment Board. It was at the height of the buyout boom, with a price tag of $7.3 billion. Only $2.8 billion was in equity.

Analyst upgrades:

• Pacific Sunwear (NASDAQ: PSUN) was upgraded to Buy from Neutral by Pali Capital, which cited low expectations, new CEO experience, and compelling risk/reward for the upgrade.
• RBC Capital raised Aruba Networks (NASDAQ: ARUN) to Outperform from Sector Perform, based on increased visibility into wireless networking products.
• J. Crew (NYSE: JCG) was upgraded to Hold from Underperform by Needham after the company reported better-than-expected Q2 report and guidance.
• RBC Capital raised Lundin Mining (NYSE: LMC) to Outperform from Sector Perform, citing updated copper forecasts and valuation.
• Netezza (NYSE: NZ) was upgraded to Buy from Accumulate by ThinkEquity.
• Sanofi-Aventis (NYSE: SNY) was raised to Overweight from Neutral by JPMorgan.
• Williams-Sonoma (NYSE: WSM) was upgraded to Buy from Neutral by Goldman.
• Network Engines (NASDAQ: NENG) was raised to Buy from Hold by Cantor.

Most mergers are driven by the notion, sometimes wildly mistaken, that the combination will bring both a competitive advantage. Some pairs of companies, however, seem so intuitively right for one another, no bottom-line considerations should be allowed to interfere with their matrimony. Like a slot machine and a blue hair with a pocket full of quarters, these two were meant for one another.

George Carlin has a famous rap (NSFW) about Americans and our love of stuff, which drives our need to build more places to put our stuff. That's always struck me as an integrated business plan. Two seemingly perfect partners for such a business are Dollar General (NYSE: DG) and Public Storage (NYSE: PSA).

Dollar General is a leader in recreational shopping for the denominationally challenged. If you have a hankering for neon-colored plastic, something covered in polyester fur, food with the half-life of uranium-235 or clothing with the style of Piltdown Man, DG is your go-to source.There you'll find shelf after shelf of non-essentials, the kind that end up in storage sheds. Currently, the 8,260-store company is in the process of merging with Buck Holdings LP.

If this deal falters, though, how about a merger with Public Storage? PSA (I'm a little uneasy with a company whose stock ticker is the name of a prostate cancer screening test, by the way) is a REIT with direct and indirect interest in over 2,000 self-storage developments in the U.S., containing, I'm sure, a great deal of material from Dollar General. The merger would be an excellent opportunity to double-down on America's seemingly inexhaustible need for more stuff.

According to the Wall Street Journal, discount/single-price point stores like Family Dollar Stores Inc. (NYSE: FDO), Dollar Tree Stores Inc. (NASDAQ: DLTR), and the soon to be KKR owned Dollar General Corp. (NYSE: DG) are growing in popularity [subscription required] with consumers, reporting solid same-store sales growth and expanding sales of food products. According to Family Dollar CEO Howard Levine, "The low-income customer is always stressed and always strained. When things like a minimum-wage increase happen, that's a great benefit to them. When gas prices come down, that's a great benefit to them, and conversely when they go the other way, that has a negative impact."

Because of sky-high real estate prices in my area, we have no dollar stores. There used to be one in a local mall but it got replaced by a jeweler. I'm not kidding. However, anytime I'm traveling, I go to a dollar store, not because I'm "always stressed and always strained," but because it's fun. I was recently driving with my brother and we passed a Family Dollar and I practically ordered him to turn the car around. He reluctantly agreed with only this protest: "You are such a loser."

Discount general merchandise retailer Dollar General Corp. (NYSE: DG) had the kind of earnings in 4Q 2006 one would expect from a company closing over 400 underperforming stores and liquidating that inventory. Although the short term numbers are not good, they are more or less in line with what Dollar General forecast it would cost to shed that much baggage. Last week, Dollar General reported fourth-quarter net income of $50 million, or $0.16 per share. This compares with 4Q 2005 net income of $145.3 million, or $0.46 per share. For the full year 2006, Dollar General reported net income of almost $138 million, $0.44 per share, compared with full year 2005 net income of $350 million, $1.08 per share.

Dollar General marked down over $279 million worth of inventory, and had closing related costs of almost $33 million. It is not surprising its earnings were not favorable. Despite these factors, 4Q net sales were still $2.5 billion, up 3% from 4Q 2005. Net sales for 2006 were $9.17 billion, an increase of almost 7% over 2005. Dollar General also repurchased 4.5 million shares of its common stock for $80 million.

Dollar General still has very strong cash flow and continues to operate over 8,000 neighborhood stores. These factors convinced affiliates of Kohlberg Kravis Roberts & Co. (KKR) to purchase Dollar General for $22 per share, a slight premium over the closing price of $21.11 on 4 April 2007, but at a 31% premium at the time of the deal in March.

Kohlberg Kravis Roberts & Co., reportedly has BCE Inc. (NYSE:BCE), the owner of Bell Canada, in its sights.

A deal for the telecom company would be worth about CAD$30 billion (over USD$25 billion), making it the largest acquisition in Canadian history and one of the largest buyouts ever, according to the Globe and Mail newspaper. KKR is looking for Canadian partners such as the Ontario Teachers' Fund since foreign firms are prohibited from owning more than 46% of a telecom company's voting shares.

Shares of BCE were up 12% pre-market trading. They have dropped about 4% this year.

KKR already has its hands full:

The New York-based buyout firm is part of the $45 billion TXU Corp. (NYSE: TXU) deal, the largest buyout ever. KKR also is among the companies in the hunt for Australian retailer Coles Group Ltd. Last month, it agreed to buy Dollar General Stores Corp. (NYSE: DG).

Apparently, there's no limit to the number of multi-billion acquisitions that KKR can juggle at the same time.

MOST NOTEWOTHY: ConocoPhillips (COP), InfoSpace, Inc (INSP), Verizon Communications (VZ) and Advanced Micro Devices (AMD) were some of today's more notable downgrades:

• Goldman Sachs downgraded ConocoPhillips (NYSE: COP) to Neutral from Buy.

• Stanford cut InfoSpace Inc (NASDAQ: INSP) to Sell from Hold as the firm believes shares are overvalued since the company has no clear plans to reignite growth.

• Buckingham downgraded Verizon Communications (NYSE: VZ) to Neutral from Accumulate.

• Advanced Micro Devices (NYSE: AMD) was cut to Hold from Strong Buy at Matrix as the firm believes growing competition is driving down selling prices and narrowing margins.

OTHER DOWNGRADES:

• Goldman downgraded Anadarko Petroleum Corp (NYSE: APC) to Sell from Neutral.

• Merriman cut Fiberstars, Inc (NASDAQ: FBST) to Neutral from Buy.

• Bank of America downgraded Dollar General (NYSE: DG) to Neutral from Buy.

• Cantor cut AudioCodes Ltd (NASDAQ: AUDC) to Hold from Buy following the company's lowered Q1 outlook.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Some of today's more notable downgrades include Accredited Home Lenders Holding Co (LEND), RadioShack Corp (RSH) and Shuffle Master, Inc (SHFL):

• Keefe Bruyette cut Accredited Home Lenders Holding Co (NASDAQ: LEND) to Underperform from Market Perform, saying the downturn in the subprime market raised liquidity concerns on the stock.

• RBC downgraded RadioShack Corp (NYSE: RSH) to Underperform from Sector Perform, explaining that cost cutting measures are largely complete and margin expansion estimates are too aggressive.

• Shuffle Master Inc (NASDAQ: SHFL) was downgraded to Hold from Buy at Jefferies, citing the lack of visibility into the company's placements and potential IP protection risk in Macau. Shuffle Master was also cut to Underperform from Peer Perform at Bear Stearns following the company's announcement that it will have to restate prior financial results.

OTHER DOWNGRADES:

• UBS downgraded shares of Marvell Technology Group (NASDAQ: MRVL) to Reduce from Buy, citing risks to HDD demand given upcoming launches by Apple (NASDAQ: AAPL) of NAND-based Video iPods. The analyst expects HDD weakness to phase in and not collapse, but sees limited growth in the HDD segment.

• Roth Capital cut WPT Enterprises, Inc (NASDAQ: WPTE) to Sell from Hold, citing valuation, reduced earnings expectations and execution risk related to bringing the online gaming business in house.

• China Eastern Airlines Corp (NYSE: CEA) was downgraded to Underweight from Equal Weight at Morgan Stanley.

• China GrenTech Corp (NASDAQ: GRRF) was downgraded to Neutral from Positive at Susquehanna.

• RBC cut Nova Chemicals Corp (NYSE: NCX) to Sector Perform from Outperform.

• Sandler downgraded shares of OceanFirst Financial (NASDAQ: OCFC) to Hold from Buy.

• Citigroup downgraded Dollar General Corp (NYSE: DG) to Hold from Buy.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Main market news here.

Apple Inc. (NASDAQ:AAPL) troubles in Europe over its iTunes practices are far from over if the European Union consumer chief Meglena Kuneva has a say in the matter. The chief talked about the iPod/iTunes bundling issues arguing it limits consumer free use of purchased songs.

The Wall Street Journal reported that top two executives at Intel Corp. (NASDAQ:INTC) have not complied with a company directive to retain e-mail relevant to antitrust litigation against the company from rival Advanced Micro Devices Inc. (NYSE:AMD).

300 Spartans made Time Warner Inc.'s (NYSE:TWX) Warner Bros. $70 million this weekend. "300" - the movie about the 300 Spartans who had fought off a much larger Persian force in an epic battle brought in more crowd than the top ten movies combined. Next was "Wild Hogs" from the Walt Disney Co. (NYSE:DIS) Disney studios that made $28 million for a total of $77.4 million.

After sinking more than 5% on Friday Yahoo Inc. (NASDAQ:YHOO) shares are up 0.45% in pre-market trading. The sell-off was triggered by fears following unconfirmed report in The Wall Street Journal about a setback in a lucrative partnership with AT&T Inc. (NYSE:T) that could undercut Yahoo!'s gains.

I wonder whether the publicity Starbucks Corp. (NASDAQ:SBUX) is getting right now in China is a good one even though some say all publicity is good publicity. A Chinese parliament member added his voice to the campaign, demanding that a Starbucks coffee shop set up inside Beijing's Forbidden City be closed. Starbucks removed its logo but didn't close the store after the campaign was launched two months ago.

Dollar General Corp. (NYSE:DG) has agreed to be acquired by private equity firm Kohlberg Kravis Roberts & Co. L.P. in a deal valued at $7.3 billion, including approximately $380 million of debt. Dollar General competes with Wal-Mart Stores Inc. (NYSE:WMT).

JC Penney (NYSE:JCP) and Kohl's Corp. (NYSE:KSS) were upgraded at UBS from Neutral to Buy.
Nokia Corp. (NYSE:NOK) was upgraded by Oppenheimer from Neutral to Buy.
Advanced Micro Devices Inc. (NASDAQ:AMD) was downgraded by Thomas Weisel from Overweight to Market Weight.

A week ago I wrote an article comparing the two best known dollar stores. "The battle of the dollar stores" was my attempt to decide which of those two discount operations might provide better growth in 2007. A quick review of their respective performances amidst the current market downturn indicates that while not performing spectacularly, Dollar General (NYSE:DG) appears to be weathering the storm. What prompted me to write this current mention of DG was a couple comments which I witnessed on a message board. A couple of emotional writers exchanged swipes in regard to DG and I find them quite humorous. The comments linked to here reflect common sentiment towards DG right now, that being that the company's share value is deflated well below expectations.

It is my opinion that positions held in stocks which were undervalued prior to the markets turning south is a good spot to be in right now. Historically it's the positions in stocks which consensus declared were overvalued which have taken the biggest pounding in market down turns. So if you are holding shares of Dollar General and you purchased them prior to the market slide during the period in which they've been deflated, in my thinking you now hold a pretty safe position in which to ride out the storm.

See my declarations regarding the market's bearish turn here, here and here.