Analyst upgrades:

• JP Morgan upgraded Alcoa (NYSE: AA) to Overweight from Neutral and added shares to its Focus List. The analyst said the equity offering and dividend cut provide enough "liquidity insurance" to make it through 2009 and now views risk/reward as attractive.
  
• Deutsche Bank upgraded Asbury Automotive (NYSE: ABG) to Buy from Hold as it finds the current valuation attractive and thinks the company's cost savings will drive upside in a recovery. The firm raised its target price to $7 from $5.50.
  
• Barclays upgraded Beckman Coulter (NYSE: BEC) to Overweight from Equal Weight. Following their healthcare conference and management meetings, the firm sees increased visibility into revenues.
• Waddell & Reed (NYSE: WDR) was raised to Buy from Neutral at Goldman.
  
• Nokia (NYSE: NOK) was upgraded to Outperform from Neutral at Credit Suisse.
  
• Brocade (NASDAQ: BRCD) was lifted to Outperform from Sector Perform at RBC Capital.

Graco Inc. (NYSE: GGG), a leading manufacturer and distributor of industrial and commercial liquids (not the baby stroller company), is still struggling to develop a growth strategy that will help the company overcome a slowdown in the commercial painting sector of the U.S. economy. Until both retail and commercial construction return to normal levels, Graco will continue to face slow or no growth in sales and profits in its U.S. market. The stock has gone nowhere recently, opening the year trading at $40.28, and closing on July 13 at $39.68, up .30. It pays a quarterly dividend of $.165 per share, not enough to attract favorable attention.

A quick look at its 1Q 2007 results confirms that Graco has taken a few hits in the past few months, but CEO David Roberts remains optimistic that Graco's numbers will shortly turn favorable as its completes the acquisition and integration of Gusmer and Lubriquip, and opens a new manufacturing facility in its home state of Minnesota. In 1Q 2007, total sales increased 3% to $197.5 million, but net earnings declined, led by a 9% decline, to $120.5 million, in its U.S. market. EPS declined 2% to $.50. This decline is nothing to get alarmed about, except that the next few quarters don't look that good for the construction sector in the U.S., despite CEO Roberts forecast, so Graco will continue to post low numbers.

Graco is concentrating on growth opportunities in both Europe and Asia. European sales increased 25% to just under $50 million, but a big chunk of that gain was due to currency exchange rates, not organic growth. Sales in Asia increased 35% to $27.6 million, but again, organic growth accounted for only a portion of the increase. Overall operating profit decreased slightly, from 28.4% to 26.4% mainly due to higher product development spending and marketing costs for a new line of paint sprayers. Graco repurchased $24 million of its stock during 1Q 2007 and still has cash on hand to pursue selective acquisitions and expand both its market and distribution channels.

MOST NOTEWORTHY: FormFactor, Inc (FORM), Graco Inc (GGG), China Telecom (CHA), Sempra Energy (SRE) and Unica Corp (UNCA) were today's noteworthy downgrades:

• JP Morgan cut FormFactor (NASDAQ: FORM) to Underweight from Neutral citing expected competition from Micronics Japan, which has successfully ramped up production at its new advanced probe card factory.

• CIBC's checks suggest that challenges still remain in Graco's (NYSE: GGG) contractor segment and is likely to impact results, downgrading shares to Sector Performer from Sector Outperformer.

• Deutsche Bank downgraded shares of China Telecom (NYSE: CHA) to Hold from Buy to reflect slower user growth as the company added 77% fewer fixed-line customers in the first five months of 2007.

• Sempra Energy (NYSE: SRE) was cut to Outperform from its Top Pick rating at RBC Capital following the company's JV announcement with the Royal Bank of Scotland (RBSPY).

• Jefferies downgraded shares of Unica (NASDAQ: UNCA) to Hold from Buy after the company reported lower than expected Q3 licenses to reflect too much variance in execution...

OTHER DOWNGRADES:

• Linear Technology (NASDAQ: LLTC) was downgraded to Accumulate from Buy at ThinkEquity.

• Rackable Systems (NASDAQ: RACK) was downgraded to Sector Outperform at RBC Capital.

• Stanford cut Dobson (NASDAQ: DCEL) to Hold from Buy.

• Lehman assumed coverage of Extreme Networks (NASDAQ: EXTR) with an Equal Weight rating, downgrading shares from Overweight.

• Lazard downgraded First Solar (NASDAQ: FSLR) to Hold from Buy.

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