Analyst upgrades:

• Citigroup upgraded shares of Lennar (NYSE:LEN) to Buy from Hold on valuation as they believe the recent sell-off on concerns of fraud is overdone. The firm thinks the allegations made by Barry Minkow/Fraud Discovery Institute are unfounded and has an $11 target on shares.
  
• Merriman upgraded Nautilus Group (NYSE:NLS) to Neutral from Sell after meeting with management to reflect increased optimism on the company's turnaround.
  
• Baird upgraded Leap Wireless (NYSE:LEAP) to Outperform from Neutral based on valuation and strong subscriber trends.
  
• Transocean (NYSE:RIG) was added to Goldman's Conviction Buy List.
  
• Pearson PLC (NYSE:PSO) was raised to Neutral from Underweight at JP Morgan.
  
• Smith & Nephew (NYSE:SNN) was lifted to Outperform from Neutral at Credit Suisse.

Analyst downgrades:

• JP Morgan downgraded Bed Bath & Beyond (NASDAQ:BBBY) to Underweight from Neutral and lowered their target to $20 from $26 as they believe potential benefits from the Linens' N Things closing are being overstated and that the risk/reward is unfavorable at current levels.
  
• Keefe Bruyette downgraded Citizens Republic (NASDAQ:CRBC) to Market Perform from Outperform and cut their target to $3 from $7 to reflect the company's lower capital position.
  
• UBS downgraded Energizer (NYSE:ENR) to Sell from Neutral and lowered their target to $40 from $48 citing signs of a battery price war, Wal-Mart's (NYSE:WMT) reduction in space allocation, and the company's cuts in investment.
  
• Chevron (NYSE:CVX) was removed from Goldman's Conviction Buy List.
  
• MetroPCS (NYSE:PCS) was lowered to Sector Perform from Outperform at RBC Capital.
  
• Lincoln Electric (NASDAQ:LECO) was cut to Sell from Neutral at Piper Jaffray.

Analyst initiations:

• Global Hunter believes Pep Boys (NYSE:PBY) is well-positioned to benefit from increased demand for replacement parts and maintenance services as new car purchases are deferred. Shares were initiated with a Buy rating and $5.50 target.
  
• Jefferies started Sanofi-Aventis (NYSE:SNY) with an Underperform rating and sees downside risk to the stock from the potential introduction of Lovenox generics in the U.S.
  
• Merriman assumed Alter Nrg (NYSE:ANRGF) with a Neutral rating and recommends waiting on the sidelines pending increased visibility on the company's gasification projects.
  
• JP Morgan (NYSE:JPM) was re-initiated with a Buy rating at Goldman. Shares were also added to Goldman's Conviction Buy List.
  
• Hudson City Bancorp (NYSE:HCBK) was assumed with an Overweight rating and $15 target at Barclays.
  
• DG FastChannel (NASDAQ:DGIT) was initiated at BWS Financial with a Strong Buy rating and $30 target.

Analyst upgrades:

• Jefferies upgraded shares of Ensco International (NYSE: ESV) to Buy from Hold on valuation as they find the company's long-term EPS growth and potential upside from the GOM/Mexico jack-up market compelling.
  
• Friedman Billings upgraded Juniper (NASDAQ: JNPR) to Outperform from Market Perform following the better-than-expected Q2 report. The firm raised Juniper's target to $29 from $27.
  
• Friedman Billings upgraded shares of Southwestern Energy (NYSE: SWN) to Outperform from Market Perform on valuation following the recent weakness. Southwestern's target was raised to $43 from $40.
• Chipotle Mexican Grill (NYSE: CMG) was upgraded to Neutral from Underperform at Merrill.
  
• Merrill also upgraded Delta (NYSE: DAL) to Buy from Neutral.

Analyst downgrades:

• Baird downgraded Crocs (NASDAQ: CROX) to Neutral from Outperform following the company's weak Q2 report and guidance.
• Merriman cut Nautilus Group (NYSE: NLS) to Sell from Neutral to reflect the company's dependence on the consumer home fitness market at a time when consumer spending trends are weakening. The firm believes shares are overvalued and could potentially decline to the $4.00-$4.50 level.
• E.W. Scripps (NYSE: SSP) was downgraded at JP Morgan to Neutral from Overweight.
  
• HSBC lowered Daimler AG (NYSE: DAI) to Neutral from Overweight.
  
• Epicor Software (NASDAQ: EPIC) was downgraded to Hold from Buy at KeyBanc.

Nautilus (NYSE: NLS), a marketer, developer and manufacturer of health fitness equipment, is recently up 85 cents to $6.45. NLS is holding a special meeting today for shareholders to vote on Sherborne Investors LP's proposal calling for the replacement of four existing NLS board members with four Sherborne nominees. NLS call option volume of 5,614 contracts compares to put volume of 220 contracts. NLS January option implied volatility of 120 is above its 26-week average of 61 according to Track Data, suggesting larger price fluctuations.

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

Shares of Nautilus, Inc. (NYSE: NLS) have staged an impressive comeback today. After closing yesterday at $6.30, shares sank as low as $5.36 in trading this morning, their lowest point since 1999. But the stock rebounded as high as $7.12 in the afternoon.

A pretty ambivalent reaction to the terrible earnings the company released yesterday afternoon, wouldn't you say? Sales plunged 16% for the third quarter, and the company lost 42 cents per share compared with earnings 9 cents (before a tax reversal that increased the gain to 29 cents) in the prior year quarter.

CEO Robert Falcone, who was elevated to the position in August commented that "We are very disappointed by Nautilus' third quarter financial results. Our shareholders can be certain that we are implementing the changes necessary to address these shortfalls in order to drive sustainable growth and value."

With stock badly beaten down, it may be time for investors to take a look at the company. Sherborne Investors owns 23.5% of the company, and is locked in a battle for control of the board as it seeks to unlock value for shareholders. Robert Falcone doesn't like them too much, telling The Oregonian that "In my opinion, they're slash-and-burn people, and they would try to get the stock up for the short term without giving any regard to long-term benefit. That's not the way of running a company... They don't really know anything about the company as far as we've heard. What are they going to tell the people that have been here for years?"

Of course, looking at Nautilus' results over the past few years, I would argue that the company's management doesn't know much about running a company either -- unless by running a company you mean paying yourself a lot of money while shareholders lose millions.

Still, the big decline and strength of brands like Bowflex and Nautilus could make this a stock worth keeping an eye on, especially with Sherborne keeping an eye on things, looking out for the interests of outside investors.

Visit AOL Money & Finance for more earnings coverage

Nautilus (NYSE: NLS) President and CEO Greg Hamman resigned abruptly, with no explanation given in the company's press release. Hamman will also be giving up his board seat, and will be replaced in his leadership role by Robert S. Falcone, the company's current lead independent director, on an interim basis.

Sherborne Investors has accumulated just under 20% of the company's shares and, given its activist background, it seems likely that the fund's position in the stock contributed to Hamman's departure.

Also intersting, the company has attracted the scorn of watchdog Herb Greenberg for its harsh treatment of an analyst who had the nerve to give the stock a sell rating. The stock's performance in recent years tells you all you need to know about the wisdom of the analyst's sell-call, and also the performance of the company's management.

But there may be value here. Nautilus is trading close to its book value with a low price-earnings multiple and a firm like Sherborne may be just what is needed to shake things up.

I would consider buying Nautilus here. The party has already ended for one overpaid CEO, and more changes are hopefully coming. There is no question that the Nautilus brands, including BowFlex have value.

Shares of Nautilus (NYSE: NLS), the maker of the BowFlex and the StairMaster, have hit a 6-year low after the company reported another disappointing quarter last week. To make matters worse, Herb Greenberg wrote an interesting piece on the company, based on an interview with an analyst who claimed that the company was giving him the silent treatment after he downgraded the stock. So investors are left questioning the character of top executives, while the company's operational failures speak for themselves.

In steps Sherborne Investors, which reported a 19.9% stake in the company this morning. This is especially interesting because according to the firm's website: "Sherborne Investors is a 'turnaround' investment firm which targets publicly quoted European and US companies that have underperformed the market due to operational, rather than capital structure, issues. We develop a turnaround thesis, acquire a significant equity position, and then obtain a shareholder mandate to effect a change in board composition. Sherborne does not agitate for others to make changes; rather, we assume responsibility for directing or managing a turnaround for the benefit of all shareholders."

The shares are badly beaten down and the company is need of a turnaround. But there's no question that the core brands have a lot of value, and stock may be undervalued now that someone has arrived on the scene to shake things up.

If I owned shares of Nautilus (NYSE: NLS), I would probably dump them after reading this alarming piece from Herb Greenberg: Eric Wold, a highly-respected analyst at Merriman Curhan Ford & Co says that the company has cut him off from communication after he slapped a sell rating on the stock.

Of course, Nautilus disputes Wold's allegations, and says that the company has not blacklisted him. But it's hard to imagine why Wold would make up such a story, and even harder to picture Nautilus's management admitting to treating an analyst this way. So I'm inclined to believe Wold.

This kind of analyst-bullying at Nautilus is reminiscent of disgraced former Enron CFO Andy Fastow's treatment of analysts. It demonstrates a vindictiveness on the part of the company's management, and a high degree of arrogance. It also suggests that management may be too focused on its stock price and analyst research, when the company should be focused on its struggling business.

Some will probably say that dumping the stock purely based on Greenberg's piece is an overreaction. I disagree. One of the most important factors in analyzing a company is the management, and this raises grave questions about their ethics. The fact that a Nautilus spokesman was most likely dishonest with Greenberg compounds the issue.

MOST NOTEWORTHY: Merck & Co (MRK), Intersil Corp (ISIL), Nautilus Group (NLS) and Pacific Sunwear (PSUN) were some of today's more noteworthy upgrades:

• Merck & Co (NYSE: MRK ) was upgraded to Neutral from Sell at Goldman Sachs to reflect the company's continued revenue strength and raised guidance. They believe strong execution continues.
• JP Morgan upgraded Intersil Corp NASDAQ: ISIL) to Overweight from Neutral based on improving fundamentals.
• Matrix USA upgraded shares of Nautilus Group (NYSE: NLS) to Hold from Strong Sell after this week's sell-off.
• Pacific Sunwear of California (NASDAQ: PSUN) was added to Freidman Billing's Top Picks List, believing the turnaround is taking hold following strong March comps.

OTHER UPGRADES:

• Goldman added L-3 Communications Hlds (NYSE: LLL) to its Conviction Buy List and raised its target to $105 from $95.
• McCormick Corp (NYSE: MKC) was upgraded to Outperform from Market Perform at Wachovia citing core performance in both Industrial and Consumer, including a nominal boost in long-term growth outlook.
• Bear Stearns upgraded shares of Ventana Medical Systems (NASDAQ: VMSI) to Outperform from Peer Perform, citing the company's solid base business outlook and Symphony potential.
• Piper Jaffray upgraded Ocwen Financial (NYSE: OCN) to Outperform from Market Perform.
• JP Morgan upgraded TJX Cos (NYSE: TJX) to Neutral from Underweight expecting merchandising initiatives and marketing spending to drive growth.

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

MOST NOTEWORTHY: SanDisk (SNDK), JetBlue (JBLU), and the Semiconductor Equipment Sector filled out today's notable downgrades:

• Baird downgraded SanDisk Corp. (NASDAQ:SNDK) to Neutral from Outperform with a $43 target, citing the company's reduced gross margin outlook.
• Morgan Stanley downgraded JetBlue Airways Corp. (NASDAQ:JBLU) to Equal Weight from Overweight.
• The Semiconductor Equipment sector was downgraded to Market Weight from Overweight at Credit Suisse, citing first quarter memory chip margins that are lower for the first time in three years.
• Credit Suisse also downgraded Lam Research Corp (NASDAQ:LRCX) to Neutral from Outperform, citing negative catalysts ahead, despite the cheap valuation, and Varian Semiconductor Equipment Associates, Inc. (NASDAQ:VSEA) to Underperform from Neutral, citing valuation.

OTHER DOWNGRADES:

• Soleil Securities downgraded AK Steel Holding Corp. (NYSE:AKS) to Sell from Hold on valuation.
  
• Merriman cut the Nautilus, Inc (NYSE:NLS) to Sell from Neutral. They believe shifts in spending patterns to "big box" retailers are hurting direct channel results. The firm also believes Nautilus lacks near-term catalysts.
• Citigroup downgraded Volkswagen (OTC:VLKAY) to Sell from Hold.
• Matrix USA downgraded Kulicke & Soffa Industries, Inc. (NASDAQ:KLIC) to Strong Sell from Strong Buy, citing decreasing revenues and growing valuation.
• Wedbush downgraded LeapFrog Enterprises, Inc. (NYSE:LF) to Sell from Hold and expects a better entry point in the future.
• RBC cut Abercrombie & Fitch Co. (NYSE:ANF) to Sector Perform from Outperform citing the lack of near-term catalysts.

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