Analyst Upgrades

• InterMune (ITMN) to outperform from neutral at RW Baird.
• Huntington Bancshares (HBAN) to buy from neutral at BofA/Merill.
• Halliburton (HAL), Cloud Peak Energy (CLD), Patriot Coal (PCX) and Consol Energy (CNX) to outperform from market perform at FBR Capital.
• Post Properties (PPS) to equal weight from underweight at Barclays.
• Airgas (ARG) to overweight from neutral at Piper Jaffray.
• Hologic (HOLX) to top pick from sector perform and Sunesis Pharma (SNSS) to outperform from sector perform at RBC Capital.

The U.S. House of Representatives passed the tax bill that had already been approved by the Senate, but that did little, if anything, to put a charge into the market today. Better-than-expected earnings reported after markets closed yesterday from Oracle and Research in Motion didn't boost the opening today either. Later in the morning, the report on leading economic indicators from the Conference Board also showed improvement, rising 0.4% in October. The dollar rose slightly on the forex market following Moody's five-notch downgrade of Irish debt. All in all, a day of mixed news with mixed results.

Here are the numbers for late afternoon trading today:

Dow Jones 11,491.98 -7.27 (-0.06%)
S&P 500 1,243.91 +1.04 (0.08%)
Nasdaq 2,642.97 +5.66 (0.21%)

On Tuesday, I outlined the nuts and bolts of a bullish call spread on InterMune (ITMN), with the speculator looking for the stock to rally as high as $75 prior to June expiration. Well, as many of you may have noticed, this trade isn't panning out too well -- yesterday, ITMN plummeted 75% after the Food and Drug Administration (FDA) unexpectedly rejected its experimental lung drug.

On the plus side, the long call spread trader's losses are inherently limited. Even with ITMN tumbling south of $10 per share on Wednesday, the worst that can happen is that both of his June-dated calls will expire worthless (which seems like a relatively safe bet at this point). The maximum potential loss on that spread amounts to no more than the initial net debit of $2.05 per pair of contracts.

InterMune (ITMN) has already racked up an impressive year-to-date gain of more than 268%, but one bullish bettor is expecting the equity's uptrend to continue during the near term. On Monday, a cautiously upbeat options trader singled out the drug stock for a long call spread.

Specifically, the speculator bought to open 1,000 contracts of InterMune's June 65 call, and simultaneously sold to open 1,000 contracts of the equity's June 75 call. The trader shelled out $3.53 for each June 65 call, and raked in $1.48 for the sale of each June 75 call. As a result, the long call spread was opened for a net debit of $2.05 per pair of contracts (which is why this strategy is often referred to as a "debit spread").

Late Tuesday, an advisory panel of the Food & Drug Administration (FDA) voiced its approval for pirfenidone, the experimental lung drug from InterMune (ITMN). The panel voted 9-3 in favor of recommending pirfenidone to patients with idiopathic pulmonary fibrosis.

The FDA is expected to follow the advice of the advisory panel, although it's not required to do so. The regulatory agency is due to issue its final ruling on the drug's fate by early May.

Intermune (NASDAQ: ITMN) closed at $11.72. ITMN's Pirfenidone Capacity data is expected soon. ITMN February 12.5 straddle is priced at $7.40, April 12.5 straddle is at $9.80 and July 12.5 straddle is priced at $14.10 according to Track Data, suggesting large price movement.

Sequenom (NASDAQ: SQNM) closed at $23.09. SQNM will present Down's syndrome data after the market close today. SQNM February option implied volatility is at140; March is at 120; above its 26-week average of 103, according to Track Data, suggesting larger price movement.

Intermune (NASDAQ: ITMN) closed at $13.41. ITMN-191/R7128 combination data in January 2009. ITMN's Pirfenidone (inhibits collagen synthesis) data is expected in Q1 of 2009. Robert Baird has a Neutral rating on ITMN. ITMN January option implied volatility is at 189; April is at 175; above its 26-week average of 136 according to Track Data, suggesting larger price movement.

Onyx Pharma (NASDAQ: ONXX), a developer of cancer therapies, closed at $30.09. ONXX was raised to Overweight verses Neutral at JPMorgan. ONXX January option implied volatility of 76 is above its 26-week average of 69 according to Track Data, suggesting larger price movement.

OSI Pharma (NASDAQ: OSIP), a developer of cancer therapies, closed at $33.16. OSIP January option implied volatility is at 78, July is at 60. OSIP average option implied volatility over the last 26-weeks is 67 according to Track Data, suggesting larger near term risk with less outer month risk.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MOST NOTEWORTHY:

• Nollenberger initiated shares of Gander Mountain Company (NASDAQ: GMTN) with a Sell rating and $5.00 target, and believes the company's goal of reaching profitability in 2007 could prove overly optimistic.
  
• Lev Pharmaceuticals (OTC: LEVP) was initiated with a Sector Outperformer rating and $3 target at CIBC, as the firm believes Cinryze will likely be approved in 1Q08 and they expect the company to have significant pricing leverage.
  
• JP Morgan resumed coverage of Intermune Inc (NASDAQ: ITMN) with an Overweight rating and expects shares to be driven by the company's pipeline in IPF and HCV.
  
• Aetna Incorporated (NYSE: AET) was initiated with an Outperform rating at Wachovia. The firm feels Aetna is positioned for better growth and higher quality earnings than its peers.
  
• William Blair started shares of Medco Health Solutions Inc (NYSE: MHS) with an Outperform rating, as they believe an aging population, rising health care costs, and an acceleration in new product introductions should increase demand for PBM services over the next five years.

• ABN Amro started shares of Siliconware Precision Industries Company Ltd (NASDAQ: SPIL) and Advanced Semiconductor Engineering Inc (NYSE: ASX) with Buy ratings.
  
• Goldman initiated Silicon Image Inc (NASDAQ: SIMG) with a Sell rating and $4.50 target, and initiated Sigma Designs Inc (NASDAQ: SIGM) and SiRF Technology Holdings Inc (NASDAQ: SIRF) with Neutral ratings and a $43 target and $19 target, respectively.

MORE NOTEWORTHY:

• American Technology started InterMune Inc (NASDAQ: ITMN) with a Buy rating and $29 target as the firm believes the recent share weakness in InterMune provides a buying opportunity. The firm expects significant news flow from the ITMN-191 program over the next 12 months to provide positive catalysts to shares.

• Pacific Crest initiated Riverbed Technology Inc (NASDAQ: RVBD) with an Underperform rating and $22 target, citing valuation.

• Credit Suisse started Credence Systems (NASDAQ: CMOS) with an Underperform rating and $3 target.

• JP Morgan started MWI Veterinary (NASDAQ: MWIV) with an Overweight rating, saying industry fundamentals are favorable and MWIV's growth prospects are strong.

• UBS & Merrill Lynch both started Duncan Energy Partners (NYSE: DEP) with a Neutral rating.

• Employers Holdings, Inc (NYSE: EIG) was initiated with an Equal-Weight rating at Morgan Stanley.

• Needham initiated Cascade Microtech, Inc (NASDAQ: CSCD) with a Buy rating and $18 target.

• Credit Suisse assumed coverage of Teradyne, Inc (NYSE: TER) and Amkor Technology (NASDAQ: AMKR) with a Neutral rating and $17 target.

• Goldman Sachs (NYSE:GS) added the aerospace & defense company Lockheed Martin (NYSE: LMT), to their America's Conviction List expecting the company to benefit from 2006 share gains in 2007. The firm also sees upside to their $102 target.

• InterMune Inc. (NASDAQ: ITMN) was upgraded to Outperform from Market Perform Outperform by Wachovia and Leerink Swann, following the company's announcement of positive Phase III Pirfenidone data; Leerink believes there is substantial upside left in Intermune's $1B market cap, assuming $500M in sales of Pirfenidone in 2012.
  

MOST NOTEWORTHY: Applebee's (APPB) and InterMune (ITMN) top today's small list of upgrades.

• Applebee's International, Inc. (NASDAQ: APPB) was upgraded to Buy from Hold at Merrill Lynch as it believes the addition of shareholder activist Breeden Capital Management's addition to the shareholder base will serve as a catalyst for management to increase returns and pursue strategic alternatives.
• Deutsche Bank upgraded shares of InterMune, Inc. (NASDAQ: ITMN) to Buy from Hold, following the announcement that the company will collaborate with Roche (RHHBY) on Hep C products.

OTHER UPGRADES:

• Cowen upgraded Atheros Communications, Inc. (NASDAQ: ATHR) to Outperform from Neutral after checks indicated the inventory correction for UTHR's 802.11 chipsets had been completed and said the company's Q4 outlook is strong driven by seasonal strength in 802.11g, a ramp of 802.11n in access points and laptop PCs, and continued growth from new PAS handset customers.
• And finally, Bear Stearns upgraded Pharmaceutical Product Development, Inc. (NASDAQ: PPDI) to Outperform from Peer Perform following their strong Q3 results and upside to its $46 target.

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