Before the bell: Futures higher after BUD offer, ahead of retail sales

American International Group (NYSE: AIG) shareholders -- former AIG director, Eli Broad, and two fund managers , who together control about 4% -- are asking for changes to the management and board of the world's largest insurer, which has been struggling with the fallout of the subprime mortgage mess.

Caterpillar Inc. (NYSE: CAT) said it will spend $1 billion over the next two years to expand capacity in five of its Illinois factories, and will shift production at some of its plants to address the demand for machines used mostly in mining and large infrastructure projects.
Also, CAT and Navistar International Corp. (NASDAQ: NAVZ) will begin cooperating to pursue new on-highway truck business and cooperate on an variety of engine platforms.

Starbucks Coffee Co. (NASDAQ: SBUX) said Thursday that it has reached a licensing agreement with SSP to open coffee retail stores in more than 150 airports and train stations in Europe. Financial terms were not disclosed.

MOST NOTEWORTHY: Allegheny Tech, Carpenter Tech, Haynes, Motorola and Machinery stocks were today's noteworthy downgrades:

• JP Morgan downgraded Allegheny Tech (NYSE:ATI), Carpenter Tech (NYSE:CRS) and Haynes (NASDAQ:HAYN) to Neutral from Overweight based on the decline in nickel prices and its impact on nickel-based metals demand on valuation, as they find the risk/reward less attractive following the recent rally and increased raw material costs.
  
• Oppenheimer downgraded shares of Motorola (NYSE:MOT) to Underperform from Perform after channel checks indicated the company could miss Q2 handset guidance and continued market share losses.
• UBS said the risk/reward profile for owning Machinery stocks given macro challenges and valuations. The firm downgraded Caterpillar (NYSE:CAT) and Kennametal (NYSE:KMT) to Sell from Neutral and United Rentals (NYSE:URI) and RSC Holdings (NYSE:RRR) to Neutral from Buy. Additionally, shares of Paccar (NASDAQ:PCAR) were cut to Sell from Neutral and Navistar (OTC:NAVZ) was downgraded to Neutral from Buy due to weak U.S. truck demand.
  

OTHER DOWNGRADES:

• Jefferies cut Hercules Inc (NYSE:HPC) to Hold from Buy.
  
• Goldman downgraded Pfizer (NYSE:PFE) and DirecTV (NASDAQ:DTV) to Neutral from Buy.
  
• Regeneron (NASDAQ:REGN) was downgraded to Neutral from Outperform at Credit Suisse.

General Motors (NYSE: GM) was cited in The Wall Street Journal last evening saying it would be selling its profitable medium-duty truck business to Navistar (OTC: NAVZ) in a deal that was announced today as part of a non-binding deal between the two companies.

Financial terms of the deal are still unreleased, but GM continues to shed its business of non-core assets as a way to return to consistent profitability -- specifically related to its North American operations. Since GM does not break out sales in exact fashion in its financial results, it's unclear how much of an impact this deal will have on the automaker.

It is known that GM sells about 50,000 trucks from the medium-duty line per year in a product segment that includes dump trucks and small buses. Navistar's expertise in this field makes it a perfect choice to buy the business from GM, although it's actually a profitable arm of the global automaker. Is raising capital more important, though, than selling 50,000 profitable products? This deal would seem to suggest a strong yes.

Right now, no official statement on closing an actual deal as been made on the GM sale except for the non-binding agreement between it and Navistar released just this morning. Will one come today? If not, it will be here soon.

MAJOR PAPERS:

• General Motors Corporation (NYSE: GM) is expected to announce as soon as today that it is selling its medium-duty truck unit to Navistar International Corporation (OTC: NAVZ), reported the Wall Street Journal.
• Its balance sheet is clean and straight forward, debt is less than 25% of capital, it produces over $70M a year in operating cash, pays a 3.5% dividend and buys back its stock, but, asks the Wall Street Journal's "Smartmoney Stock Screen" about Journal Communications Inc (NYSE: JRN), is this stock a bargain or perhaps a takeover candidate?

OTHER PAPERS:

• According to two people familiar with the matter, the FTC is expected to approve the proposed $3.1B acquisition of DoubleClick by Google Inc (NASDAQ: GOOG), the Washington Post reported.

WEBSITES:

• According to an inside source, Earthlink Inc (NASDAQ: ELNK) executives, including an executive VP and a VP, have left the company over the last week, DSLreports.com noted. The company is also cutting VOIP and Muni-Wifi services, in addition to the previously announced job cuts.

MOST NOTEWORTHY: Lululemon, Domino's Pizza, Kenexa, Omniture and News Corp were today's noteworthy initiations:

• Lululemon (NASDAQ: LULU) was initiated with a Neutral rating at Merrill Lynch. CIBC believes the company is well-positioned to replace its Canadian success in the U.S. market and started shares with a Sector Outperformer rating and $39 target. The stock was started at Wachovia with a Market Perform rating on valuation.
• Citigroup finds Domino's Pizza (NYSE: DPZ) compelling for long-term investors given the company's solid cash flows, above-average margins, and international growth opportunity. The firm initiated shares with a Buy rating and $22 target.
• RBC Capital started shares of Kenexa Corporation (NASDAQ: KNXA) with a Sector Perform rating and $32 target, citing lack of visibility into the company's product roadmap.
• RBC initiated shares of Omniture Inc (NASDAQ: OMTR) with an Outperform rating and $33 target. The firm believes Omniture is well-positioned given cross selling opportunities, best in class products, strong secular trends, and expanding client roster.
• News Corporation (NYSE: NWS) was initiated with a Buy rating and added to Stifel's Select List. The firm believes the FOX TV Network, stations and FOX News can garner an incremental recurring 100% margin retransmission and affiliate fees totaling $1B by 2010, adding that its sum-of-the-parts model for News Corp captures the value of $8B of "hidden" assets, yielding a fair market value of $30-$31.

OTHER INTIATIONS:

• CRT Capital initiated shares of Navistar (NASDAQ: NAVZ) with a Buy rating and $75 target.
• JP Morgan started shares of Dice Holdings (NYSE: DHX) with an Overweight rating.
• Think Equity started shares of Whole Foods Market Inc (NASDAQ: WFMI) with an Accumulate rating and $51 target.

Baidu.com Inc. (NASDAQ: BIDU) -- volatility Elevated as BIDU rallies 18% on 2Q performance. BIDU, a Chinese language internet search provider, is recently trading up $33.16 to $216.39. Thomas Weisel says, "Raising 12-month price target to $250. We remain positive on the long-term fundamentals of the paid search industry in China." BIDU August option implied volatility of 56 is above its 26-week average of 48 according to Track Data, suggesting larger risks.

Navistar International Corp. (NASDAQ: NAVZ) -- volatility stays Flat on Shareholder Rights Plan. NAVZ, a truck, bus and engine manufacturer, recently filed an 8-K that created a shareholder rights plan poison pill through July 23 2008. Wachovia said on July 24 2007, "according to documents filed with the SEC, an entity (Harbinger Capital Partners) has acquired approximately 14.3% of NAVZ." WB goes on to say "NAVZ management apparently believes its current share price is undervalued. We maintain our Market Perform and $70-73 valuation range." NAVZ over all option implied volatility of 47 is near its 26-week average according to Track Data, suggesting flat risk.

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

MOST NOTEWORTHY: The truck industry, Roo Group (RGRP), Accuray (ARAY) and TomoTherapy (TTPY) were today's noteworthy initiations:

• In the trucking industry, FTN Midwest initiated shares of Cummins Inc (NYSE: CMI) and Navistar International Corp (NASDAQ: NAVZ) with Hold Ratings and Oshkosh Truck Corp (NYSE: OSK) and PACCAR Inc (NASDAQ: PCAR) with Buy ratings.
• ROO Group (NASDAQ: RGRP) was initiated with a Buy rating and a $3.75 target at Think Equity, which believes RGRP is positioned to capitalize as the Internet continues to grow as a broadcast medium for video.
• Soleil initiated shares of Accuray Inc. (NASDAQ: ARAY) with a Buy rating and $30 target. The company is Soleil's top pick in radiation oncology.
• Soleil also initiated shares of TomoTherapy Inc. (NASDAQ: TTPY) with a Buy rating and $25 target, as the firm believes all-in-one imaging and radiation oncology system in HiArt could become the new standard of care.

OTHER INITIATIONS:

• Elan Corp (NYSE: ELN) was initiated with an Outperform rating and $40 target at Leerink Swann, which added shares to the firm's Focus List as it is positive on the Tysabri opportunity.
• Cree Inc (NASDAQ: CREE) was initiated with a Buy rating and $50 target at Amtech, as the firm believes the time for LED adoption has finally arrived and will accelerate in the future.
• Nollenberger initiated shares of ZipRealty (NASDAQ: ZIPR) and Move, Inc (NASDAQ: MOVE) with Neutral ratings.
• CIBC World Markets initiated shares of Whole Foods Market Inc. (NASDAQ: WFMI) with a Sector Underperformer rating and $38 target, expecting the company to be impacted by increasing competition.
• BMO Capital Markets initiated shares of Intel Corp. (NASDAQ: INTC) with an Outperform rating and $10 target.

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

Apple Inc. (NASDAQ: AAPL) -- May OTM puts more expensive than calls, suggesting downside Hedging. AAPL is expected to report EPS of 64 cents after the close tonight. AAPL call option volume of 56,543 contracts compares to put volume of 25,270 contracts. AAPL May 105 calls have traded 172 times on transaction volume 20,030 contracts. AAPL May 85 puts have traded 133 times on transaction volume of 8,659 contracts according to Track Data. AAPL May 85 puts are bid 55 cents, above its theoretical value of 42 cents. AAPL May 105 calls are bid 45 cents, below its theoretical value of 49 cents. AAPL options suggest downside hedging tendencies.

Navistar Intl. (NASDAQ: NAVZ) -- elevated implied volatility suggests Risk as NAVZ at record High. NAVZ, a truck, bus, engine manufacturer, is recently up $1.13 to $57.93. MAN AG, Hino, F, Fiat, Isuzu, PCAR, OSK, General Motors (NYSE: GM), DaimlerChrysler (NYSE: DCX) and Iveco have been frequently mentioned as interested in doing acquisitions, partnerships or bolt-on deals. NAVZ over all option implied volatility of 46 is above its 26-week average of 41 according to Track Data, suggesting larger price risks.

Option volume leaders today are: Intel Corp. (NASDAQ: INTC) and Apple Inc. (NASDAQ: AAPL).

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