Analyst Upgrades

• Baird upgraded Starbucks (NASDAQ: SBUX) to Outperform from Neutral based on field research that indicates improving traffic trends and visibility from cost savings initiatives.
• FBR Capital upgraded E*Trade (NASDAQ: ETFC) to Outperform from Underperform citing an attractive risk/reward following the company's capital raise and debt exchange commencement. The firm believes the worst is behind the company and has a $2 target on the stock.
• Oppenheimer upgraded Sonic (NASDAQ: SONC) to Outperform from Perform on expectations demand trends will improve, leading to more normalized profitability.
• Estee Lauder (NYSE: EL) was upgraded to Equal Weight from Underweight at Barclays.
• Motorola (NYSE: MOT) was upgraded to Buy from Neutral at BofA/Merrill.
• ConAgra (NYSE: CAG) was upgraded to Buy from Neutral at UBS.

Krispy Kreme Doughnuts' (NYSE: KKD) stock has had a nice run of late. It's doubled so far on the year-to-date frame. Is there something to this story? Before, there was nothing. Krispy Kreme has been a very troubled business, and it would be very difficult to convince me otherwise. But, have things changed?

Well, net income did drop in Q1. Krispy Kreme said it made t $0.03 per share. Last year at this time, the doughnut guru earned $0.06 per share. Although the profit decline isn't attractive, I liked the comps. Same-store sales at company locations increased over 2%.

If it's Wednesday, that means another change at Starbucks (NASDAQ: SBUX), right? Reuters is reporting that SBUX is "reworking 90 percent of its baked goods." The latest move by the caffeine king is to start selling baked goods without high-fructose corn syrup or artificial flavors and dyes. The company will also introduce salads and other items -- nothing like a coffee and some salad, right?

According to Michelle Gass, SBUX's executive vice president of marketing, "Food has been the Achilles' heel of the company. [...] That statement will be long buried after we launch this program." The new campaign from SBUX will be promoted as "Real Food. Simply Delicious." and is an extension of last year's healthy campaign.

Feel like a nice cup of decaf right about now? Don't plan on getting it at Starbucks. Popular blogger (and newspaper doomsayer) Jeff Jarvis is complaining about a new but not well publicized Starbucks policy to stop brewing fresh decaf coffee after the morning rush.

Starbucks, were the company to own up to the history of coffee, owes its origins -- not to the cafes of Italy where Howard Schultz drank the future -- but the coffeehouse culture of Central Europe. It wasn't as glamorous in the 80s and 90s to admit it, perhaps, and certainly there was no culture, coffeeshop or otherwise, to be had until McDonald's opened in Warsaw in the early 1990s.

Ironically, then, the Polish youth are embracing the newly-opened Starbucks cafes. Washington Post op-ed columnist Anne Applebaum is in Warsaw, and says that the new Starbucks there are met with open wallets and customers eager to buy the expensive brew and flaunt it, with "the famous green label facing outward."

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

• Baidu Inc. (NASDAQ: BIDU) reported better-than-expected Q1 earnings as revenues surged in the quarter.
• Burger King Holdings Inc. (NYSE: BKC) just beat Q3 expectations despite weak same-store sales growth.
• Corn Products International Inc. (NYSE: CPO) Q1 results were dragged down by higher corn costs.
• Dow Chemical Co. (NYSE: DOW) Q1 earnings sank on falling sales, job cuts and acquisition costs.
• Eastman Kodak Co. (NYSE: EK) reported a deeper-than-expected Q1 loss and suspended its dividend.
• Energizer Holdings Inc. (NYSE: ENR) posted better-than-expected Q2 earnings but revenue declined.

Starbucks (NASDAQ: SBUX) reported earnings after the bell on Wednesday. Today, shares are up almost 10% on active volume in early afternoon trading as I write this. What does the market see in the numbers that is making it so happy?

Well, it's difficult to say precisely. As we all know, Starbucks has been having its problems, and data in Q2 indicate that the status quo essentially remains. Sales: down almost 8%. Operating income: down 77%. Adjusted earnings per share: down two pennies to $0.16. Cash from operations: down 6%. Same-store sales: down 8%. See what I mean? I hate using the word "down" so many times.

Earnings season continues to move right along, and Wednesday following the market close coffee giant Starbucks Corporation (NASDAQ: SBUX) will get its chance to impress Wall Street.

The last time that the company reported earnings was back on January 28 when it failed to meet analyst expectations by posting 15 cents per share versus analyst estimates for 17 cents a share. This time around, analysts are looking for the company to show 15 cents a share for its fiscal second quarter.

This is the second post in Fast Food Wars, a look at the players in this unhealthy business that has traditionally garnered healthy returns in down times as Americans tank up on fries and burgers slathered with secret sauce.

Last week we looked at Burger King (NYSE: BKC), today we turn to Mickey D's, the grand-daddy of them all. McDonald's Corporation (NYSE: MCD ) boasts over 35,000 locations (franchised and company owned) in 100 countries.

Since shares of Starbucks (NASDAQ: SBUX) have dropped so sharply over the last year, the company keeps coming up with ways to convince its investors that it has a handle on things and can run the coffee retailer well in a harsh environment. It will make another attempt at getting its arguments across at its annual meeting Wednesday.

According to The Wall Street Journal, "executives are expected to outline a plan to weather the recession that includes an effort to make Starbucks products seem more affordable, and reassure investors that the company is on track to cut $500 million of costs by the fall."

"Hello to a new day," reads a sign at my neighborhood Starbucks Corp. (NASDAQ: SBUX). On the sign is advertised one of the "breakfast pairings at an attractive price," or what many critics have called Starbucks' attempt at "value meals": a Bacon Artisan Sandwich and a Tall Pike Place Coffee. No price is listed on the chalkboard, although new static-cling signs on the windows advertise a latte and "Perfect Oatmeal" for $3.95.

The question on everyone's lips, of course, is: will this work? Will customers buy it, figuratively, and, by taking out their wallets and buying? While I was impressed with the good taste of the sandwich, giving a thumbs up (and deciding that I would, indeed, choose to have breakfast instead of just coffee with the new meal deal -- at about $2 more, it seems to approach "bargain" status), the reaction of customers who don't typically shop at Starbucks; the real target of this campaign (along with those who've defected to McDonalds) was not encouraging.

Is it realistic to expect Starbucks (NASDAQ: SBUX) to deliver double-digit earnings growth in this environment?

Seriously, can retail customers afford premium coffee when budgets are severely strained and debts are high?

No way. Premium coffee is a luxury item, and though many are addicted to java, cutting back is relatively easy to do. In that dynamic, sales are likely to slow.

Perhaps you will file this under things that only I find interesting, but this article details results from the Pew Research Center noting that 43% of people surveyed would rather live near McDonald's (NYSE: MCD) than Starbucks (NASDAQ: SBUX).

Interesting statistic. My guess is that the biggest reason the Golden Arches is more popular is that it offers far more food at a far cheaper price.

Starbucks (NASDAQ: SBUX) is making an aggressive move into the breakfast business, including a planned budget breakfast launch that looks to capitalize on the same recession that is hurting the company's overpriced coffee sales.

That has some analysts concerned that McDonald's (NYSE: MCD) could face some competitive pressure, but CEO Jim Skinner isn't buying it. He was asked at a luncheon in Chicago whether Starbucks' revamped breakfast menu was hurting his company: "No, I don't think so in terms of market share," he replied.

But before McDonald's shareholders breath a sign of relief, they should wait and see what happens in March. On the third day of next month, Starbucks will begin offering customers their choice a 12-ounce latte with a coffee cake or oatmeal, or a tall coffee with a breakfast sandwich, for $3.99. Starbucks gained fame for being the home of the $4 coffee, but now that includes breakfast too.

Coffee is set to be "one of the most promising commodities of 2009," according to a leading Swiss commodities analyst, who predicts coffee prices will rise, likely squeezing the already-decaffeinated profits at Starbucks (NASDAQ: SBUX) and Kraft (NYSE: KFT), maker of Maxwell House, among other major coffee retailers. Current prices are $1.1305 a pound, only up a 0.9% on the year, but experts predict greatly increasing costs due to declining production in Brazil and Colombia. Coffee futures are currently at $1.20 per pound for December 2009 contracts, and $1.227 per pound for March 2010 contracts.

How much price runup are we talking? It could be increasing a whopping 50% to $1.70 per pound by June 30, according to former Merrill Lynch analyst Judith Ganes-Chase, who runs a consulting firm in Katonah, New York.