Analyst upgrades:

• Keefe Bruyette upgraded shares of Colonial Bancgroup (NYSE: CNB) to Outperform from Market Perform on valuation following the recent weakness and believes the company will be eligible to receive TARP funds. Morgan Stanley believes the company's valuation adequately reflects risk to the loan portfolio; the firm raised shares to Equal Weight from Underweight.
• Merrill upgraded Ericsson (NASDAQ: ERIC) and ASML Holding (NASDAQ: ASML) to Buy from Underperform and believes their valuation reflects the worst-case for bad news.
• Oppenheimer upgraded Trimble Navigation to Outperform from Perform on valuation as they believe the company's long-term growth story is intact.
• Celestica (NYSE: CLS) was upgraded to Sector Outperformer from Sector Performer at CIBC.
• KeyCorp (NYSE: KEY) was added to Goldman's Conviction Buy List.
• Wachovia raised EastGroup Properties (NYSE: EGP) to Outperform from Market Perform.

Analyst downgrades:

• UBS cut Barclays (NYSE: BCS) to Neutral from Buy as they believe capital raises could negatively impact earnings and that the dividend is likely to be cut.
• JP Morgan downgraded Discovery Holdings (NASDAQ: DISCA) to Underweight from Neutral based on valuation and the deteriorating economic outlook.
• Friedman Billings downgraded shares of Janus Capital (NYSE: JNS) to Underperform from Market Perform and lowered its target to $7 from $23 as they see further risk to the downside following the company's weaker-than-expected results.
• LKQ Corp (NASDAQ: LKQX) was cut to Sector Perform from Outperform at RBC Capital.
• Affymetrix (NASDAQ: AFFX) was lowered to Sell from Hold at Deutsche Bank.
• RightNow Tech (NASDAQ: RNOW) was downgraded at Baird to Neutral from Outperform.

Affymetrix (NASDAQ: AFFX) recently down $5.63 to $10.70 in pre-open trading:

AFFX, a micro array manufacturer, lowered its 2008 revenue guidance. Leerink Swann says "AFFX shares won't rally meaningfully for several months until investors' visibility is improved." AFFX over all option implied volatility of 51 was above its 26-week average of 46 according to Track Data, suggesting larger price fluctuations.

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

MOST NOTEWORTHY: EMC Corp, Emulex, VCG Holding and Conexant were today's noteworthy downgrades:

• Citigroup downgraded shares of EMC Corp (NYSE: EMC) to hold from buy and Emulex (NYSE: ELX) to sell from buy and lowered its targets to $17 from $22 and to $12 from $20, respectively, to reflect their more cautious stance on the storage space after channel checks indicated a broadly softening demand environment, most notably for 'higher ticket' items.
  
• Merriman downgraded shares of VCG Holding (NASDAQ:VCGH) to neutral from buy following the Q4 miss, as they believe acquisitions could slow in the near-term. They prefer to move to the sidelines until the company's outlook improves.
  
• Oppenheimer downgraded Conexant (NASDAQ: CNXT) to perform from outperform as they believe the CEO departure could interrupt the company's turnaround.

OTHER DOWNGRADES:

• Hercules Offshore (NASDAQ: HERO) was cut to hold from buy at Deutsche Bank.
  
• JP Morgan downgraded Blockbuster (NYSE: BBI) to neutral from overweight.
  
• Affymetrix (NASDAQ: AFFX) was downgraded to underperform from peer perform at Bear.

Illumina (NASDAQ: ILMN): Settles patent lawsuit with major rival Affymetrix (NASDAQ: AFFX). Shares trade up to $75.20 against 52-week low of $28.11.

Kinross Gold (NYSE: KGC): Price of gold and gold producers just keeps rising. Stock moves up to $22.86 from 52-week low of $9.87.

Yamana Gold (NYSE: AUY): Gold again. Rises to $16.30 from 52-week low of $8.40.

PepsiCo (NYSE: PEP): Soft-drinks sales aren't hurt by recessions, as far as anyone knows. Trades up to $79.79 from 52-week low of $61.89.

Douglas A. McIntyre is an editor at 247wallst.com.

MOST NOTEWORTHY: Marvel Entertainment Inc (MVL) and Affymetrix Inc (AFFY) were today's most notable initiations:

• Sanders Morris started Marvel Entertainment Inc (NYSE: MVL) with a Buy rating and $34 target on the belief that 2007 guidance is conservative.

• Thomas Weisel initiated Affymetrix Inc (NASDAQ: AFFY) with an Overweight rating and is positive on Hematide, their lead drug, to treat anemia.

OTHER INITIATIONS:

• Morgan Stanley initiated Emmis Communications Corp (NASDAQ: EMMS) with an Equal-Weight rating and $10 target.

• Nollenberger started LSI Logic Corp (NYSE: LSI) with a Neutral rating and $10 target; they believe it will take several quarters for the LSI-Agere business plan to pan out.

• Morgan Keegan believes shares of Buffalo Wild Wings Inc (NASDAQ: BWLD) are fairly valued, starting the company with a Market Perform rating.

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