Analyst upgrades:

• Merrill upgraded Kraft Foods (NYSE: KFT) to Buy from Neutral citing progress in the company's turnaround plan, execution, and 2009 earnings growth.
  
• Thomas Weisel raised Express Scripts (NASDAQ: ESRX) to Overweight from Market Weight and believes the company's core business remains strong and that valuation is attractive.
  
• Friedman Billings upgraded shares of Symantec (NASDAQ: SYMC) to Outperform from Market Perform on valuation after checks indicated the company should meet Q2 expectations.
• NeuStar (NSR) was upgraded to Outperform from Neutral at Baird.
  
• UBS raised Advance Auto Parts (NYSE: AAP) to Neutral from Sell.
  
• Goldman upgraded Royal Dutch Shell (NYSE: RDS.A) to Buy from Neutral.

Analyst downgrades:

• Friedman Billings downgraded shares of Zions Bancorp (NASDAQ: ZION) to Market Perform from Outperform and lowered its target to $33 from $43 following the company's Q3 results, as they believe near-term credit trends and concerns surrounding its securities portfolio will limit upside. Shares were also downgraded at JP Morgan to Neutral from Overweight due to deteriorating credit trends.
  
• Banc of America cut Monster (NASDAQ: MNST) to Neutral from Buy to reflect a lack of margin stability and their belief consensus estimates remain too high.
  
• Barclays downgraded Avis Budget Group (NYSE: CAR) to Equal Weight from Overweight citing the global economic slowdown and refinancing risk.
• Johnson Controls (NYSE: JCI), Luxottica (NYSE: LUX) and ArvinMeritor (NYSE: ARM) were cut to Neutral from Buy at Goldman.
  
• Luxottica was also downgraded at HSBC to Neutral from Overweight.
  
• JP Morgan cut AuthenTec (NASDAQ: AUTH) to Underweight from Neutral.

Analyst initiations:

• Janney Montgomery believes Gladstone Capital's (NASDAQ: GLAD) management team and lower portfolio investment risk profile warrant a premium valuation. The firm started shares with a Buy rating and $13 target.
• CommVault (NASDAQ: CVLT) was initiated with a Buy rating and $14 target at Cantor, as the firm finds the stock attractively valued given its secular growth rate potential.
  
• KeyBanc is positive on Papa John's (NASDAQ: PZZA) management team, growth potential, cost initiatives, and differentiation. Shares were assumed with a Buy rating and $30 target.
• Arris (NASDAQ: ARRS) was initiated at Jefferies with a Hold rating and $7 target.
  
• Rigel Pharmaceuticals (NASDAQ: RIGL) was initiated at Banc of America with a Neutral rating and $21 target.
  
• Morgan Stanley started Hansen Natural (NASDAQ: HANS) with an Equal Weight rating.

MOST NOTEWORTHY: UBS AG, Coventry Health, Express Scripts and Medco Health were today's noteworthy downgrades:

• Credit Suisse downgraded shares of UBS (NYSE:UBS) to Neutral from Outperform as they believe UBS will have difficulty rebuilding the franchise and do not expect a quick recovery for its private bank unit.
  
• Wachovia downgraded Coventry Health (NYSE:CVH) to Market Perform from Outperform citing concerns regarding visibility around higher than expected inpatient/outpatient costs following reduced 2008 guidance.
  
• UBS downgraded Express Scripts (NASDAQ:ESRX) and Medco Health to Neutral from Buy citing the Pfizer (NYSE:PFE)/Ranbaxy settlement, which reduces the likelihood of a generic Lipitor launch in 2010.

OTHER DOWNGRADES:

• Goldman downgraded ENI SpA (NYSE:E) to Neutral from Buy and removed the stock from the Pan-Europe Conviction Buy List.
  
• Huntsman (NYSE:HUN) was downgraded to Underperform from hold at Jefferies.
  
• Commercial Metals (NYSE:CMC) was cut at Citigroup to Hold from Buy.

MOST NOTEWORTHY: Garmin, Express Scripts and ArQule were today's noteworthy downgrades:

• Deutsche Bank downgraded shares of Garmin Ltd. (NASDAQ: GRMN) to Hold from Buy and lowered their target to $90 from $125 after channel checks at CES raised concerns about competitive pressure in the U.S. and pricing. Deutsche sees increasing uncertainty for 2008.
• Express Scripts (NASDAQ: ESRX) was lowered to Market Perform from Outperform based on valuation and risk to 2008 guidance.
  
• Banc of America downgraded shares of ArQule (NASDAQ: ARQL) to Neutral from Buy following the departure of CEO Dr. Stephen Hill, to reflect greater execution risk and uncertainty.

OTHER DOWNGRADES:

• Keefe Bruyette downgraded IberiaBank (NASDAQ: IBKC) to Underperform from Market Perform.
  
• JMP Securities lowered Red Lion Hotels (NYSE: RLH) to Market Outperform from Strong Buy.
  
• Bear Stearns downgraded Family Dollar (NYSE: FDO) to Underperform from Peer Perform.

An active pharmacy benefits manager should smooth the path between patients and their prescription medications. There is an outfit in St Louis that handles the job well. It was the recipient of Fortune's first-ever "Streetie Award" for the best overall performance by any company.

Express Scripts (NASDAQ: ESRX) is one of the largest pharmacy benefit management companies in North America, serving over 50 million members through managed-care organizations, insurance carriers, employers and workers compensation groups. Services include network-pharmacy claims processing, formulary management, home delivery services, drug-utilization review, disease management and medical-data analysis services. The company also distributes a full range of injectable and infusion biopharmaceutical products directly to patients.

Express Scripts Inc. (NASDAQ: ESRX) stock is trading much lower today after competitor Walgreen Co. (NYSE: WAG) announced a 4% Q4 profit drop, and missed earnings expectations by 7 cents, sending the stock spiraling down over 12% in early trading. If you think this stock could get hurt by the same issues as WAG and won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on ESRX.

The stock has been climbing gently over the past several months, reaching a one-year high of $56.08 on Friday. This morning, ESRX opened at $55.20. So far today the stock has hit a low of $53.48 and a high of $55.30. As of 11:05, ESRX is trading at $54.67, down $1.15 (-2.1%). The chart for ESRX looks bearish with significant improvement, while S&P gives the stock an encouraging 4 STARS (out of 5) buy rating.

For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $60 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 9.9% return in 7 weeks as long as ESRX is below $60 at November expiration. Express Scripts would have to rise by more than 10% before we would start to lose money.

ESRX has never been above $60, and could be held down by resistance at the $55 level.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Brent neither owns nor controls positions in ESRX.

MOST NOTEWORTHY: GlaxoSmithKline plc (NYSE: GSK), Express Scripts, Inc (ESRX), SanDisk Corp (SNDK), Halliburton Co (HAL) and Texas Instruments (TXN) were some of today's noteworthy upgrades.

• Deutsche Bank upgraded GlaxoSmithKline plc (NYSE: GSK) to Buy from Hold.

• Express Scripts Inc (NASDAQ: ESRX) was upgraded to Strong Buy from Buy with a $113 target at First Albany, following the stronger-than-expected first quarter results.

• SanDisk Corp (NASDAQ: SNDK) was upgraded to Buy from Hold at Citigroup.

• Halliburton Co (NASDAQ: HAL) was added to AG Edwards Focus Portfolio. The firm believes Halliburton trades at a great discount to its largest peer, Schlumberger Ltd (SLB), despite an improved earnings outlook and progress on several issues.

• Texas Instruments (NASDAQ: TXN) was upgraded to Buy from Hold at Gabelli to reflect strong first quarter results and valuation. Piper Jaffray upgraded shares of Texas Instruments to Outperform from Market Perform...
  

OTHER UPGRADES:

• Keefe Bruyette upgraded shares of BancFirst Corp (NASDAQ: BANF) to Market Perform from Underperform following its first quarter report.

• Raymond James raised Cardinal Health, Inc (NYSE: CAH) to Outperform from Market Perform.

• Matrix USA raised H.B. Fuller Co (NYSE: FUL) to Hold from Sell based on the company's sales growth.

• Baird raised Snap-on Inc (NYSE: SNA) rating to Outperform from Neutral with a $55 target.

• Bear Stearns upgraded shares of Cummins Inc (NYSE: CMI) to Peer Perform from Underperform.

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

MOST NOTEWORTHY: The pharmacy benefit managers sector, financials E*Trade Financial Corp (ETFC) and TD Ameritrade Holding Corp (AMTD) and transports J.B. Hunt Transport Services (JBHT) and Knight Transportation (KNX) were today's most noteworthy initiations:

• CIBC is positive on the pharmacy benefit managers group given increasing generic utilization, continued growth in specialty pharmacy, improving mail-order penetration and share repurchases. CIBC initiated Express Scripts, Inc (NASDAQ: ESRX) with a Sector Outperformer and $104 target as the firm expects continued strong performance as the company benefits from positive secular industry trends, and initiated Medco Health Solutions (NYSE: MHS) with a Sector Performer and $82 target on valuation.
• BMO capital started E*Trade Financial Corp (NASDAQ: ETFC) and TD Ameritrade Holdings Corp (NASDAQ: AMTD) with Outperform ratings.
• Cathay Financial started J.B. Hunt Transport (NASDAQ: JBHT) and Knight Transportation (NYSE: KNX) with Neutral ratings.

OTHER INITIATIONS:

• BMO started Charles Schwab Corp (NASDAQ: SCHW) with a Market Perform rating
• Citigroup started NYSE Euronext (NYSE: NYX) with a Buy rating and $113 target.
• AG Edwards initiated shares of La Jolla Pharmaceutical Co (NASDAQ: LJPC) with a Buy rating and $11 price objective.

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

MOST NOTEWORTHY: ABN Amro Holding NV (ABN), Werner Enterprises, Inc (WERN), Affiliated Computer Services, Inc (ACS) and Express Scripts (ESRX) were today's more notable upgrades:

• Citigroup upgraded ABN Amro Holding NV (NYSE: ABN) to Hold from Sell as the firm believes value can be realized by breaking the company up and selling units to top bidders.

• UBS upgraded both Werner Enterprises (NASDAQ: WERN) and Affiliated Computer Services to Neutral from Reduce, based on valuation.

• Express Scripts (NASDAQ: ESRX) was upgraded to Outperform from Market Perform at Leerink Swann.

OTHER UPGRADES:

• JP Morgan upgraded Clorox Co (NYSE: CLX) to Overweight from Neutral.

• Bank of America upgraded shares of Tiffany & Co (NYSE: TIF) to Buy from Neutral with a $52 target. The firm believes Tiffany can improve profitability through better operations, efficiency and downside protection from the strong luxury cycle.

• Credit Suisse added Office Depot, Inc (NYSE: ODP) to its U.S. Focus List. The firm believes that Office Depot has the most attractive risk/reward profile in the industry and sees limited downside risk given recent weakness and reduced investor expectations.

• Kaufman upgraded Best Buy Co, Inc (NYSE: BBY) to Buy from Hold with a $59 target.

• Goldman Sachs upgraded Nvidia Corp (NASDAQ: NVDA) to Buy from Neutral with a $33 target, citing valuation.

• Lehman Brothers upgraded Cadbury Schweppes plc (NYSE: CSG) to Overweight from Equal Weight.

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

MOST NOTEWORTHY: Today's notable upgrades include SanDisk Corp (SNDK), Cabela's Inc (CAB) and Knightsbridge Tankers Ltd (VLCCF):

• CIBC upgraded shares of SanDisk Corp (NASDAQ: SNDK) to Sector Outperformer from Sector Performer with a $50 target. The firm finds the risk/reward compelling due to a rebounding NAND outlook for Q4 and 2008 and the probability of Hynix signing a watershed licensing deal.

• Matrix USA upgraded Cabela's Inc (NYSE: CAB) Inc to Hold from Sell as retail operations have improved, providing a boost to fundamental trends.

• JP Morgan upgraded shares of Knightsbridge Tankers (NASDAQ: VLCCF) Ltd to Neutral from Underweight based on valuation and increased time-charter contract coverage.

OTHER UPGRADES:

• Merrill Lynch upgraded Gilead Sciences, Inc (NASDAQ: GILD) to Buy from Neutral to reflect improved prospects for long-term growth of the company's HIV-franchise.

• UBS resumed coverage of Express Scripts, Inc (NASDAQ: ESRX) with a Buy rating, up from its previous Neutral rating.

• Deutsche Bank upgraded Valspar Corp (NYSE: VAL) with a Buy from Hold and $34 target.

• HSBC upgraded Dow Chemical Co (NYSE: DOW) to Overweight from Neutral as the firm believes a joint venture with Reliance could trigger a valuation re-rating with a higher multiple, offsetting any EPS dilution.

• Caris upgraded Seagate Technology (NYSE: STX) to Above Average from Average as the firm believes Seagate has too many structural advantages over the competition.

• Buckingham upgraded TJX Cos (NYSE: TJX) to Strong Buy from Accumulate with a $33 target.

• Lehman Brothers upgraded Volkswagen ADS (OTC: VLKAY) to Equal-Weight from Underweight.

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

At long last, the CVS (NYSE: CVS), Caremark Rx (NYSE: CMX), Express Scripts (NASDAQ: ESRX) menage-a-trois has been settled. CVS will acquire Caremark Rx for $26.5 billion. Bidding for Caremark Rx by both Express Scripts and CVS has been going on in public for several months. Due to pressure from Express Scripts, which had sought to acquire Caremark Rx to form a huge pharmacy-benefits management company, CVS will pay a hefty premium after sweetening the deal on three separate occasions to beat back acquisition overtures from Express Scripts. Up to the proverbial last minute, Express Scripts insisted it would meet or exceed any CVS offer if only Caremark Rx would be more forthcoming with company information. According to Dinah Brin of The Wall Street Journal, Express Scripts had offered 0.426 of its own shares plus $29.95 in cash for each Caremark share. It also agreed to a penny per share daily fee during the closing period. Federal antitrust regulators had concerns about this deal, which again opened the door for another offer by CVS.

CVS will pay 1.67 of its own shares plus $7.50 in cash for each Caremark share. CVS shareholders will own 54.5% of the new company, while Caremark Rx shareholders will own 45.5 %. CVS had argued in print that the Express Scripts' proposal would create a company that was so highly leveraged it would rate a "junk" credit rating. Also, the combined Express Scripts-Caremark company would be many times larger than any deal Express Scripts had previously negotiated. It would be very difficult for Express Scripts to integrate Caremark into a combined company.

Express Scripts management had argued that both Express Scripts and Caremark are pharmacy-benefits management companies, whereas CVS is a drug retailer trying to acquire a pharmacy-benefits company it does not understand and will not know how to run.

CVS and Caremark management estimated half a billion dollars in cost savings annually from the combined company, with annual revenues closing in on close to $1 billion by some optimistic estimates. The combined company hopes to use its size to increase bargaining power against Walgreen Company (NYSE: WAG), Wal-Mart Stores, Inc. (NYSE: WMT) and Medco Health Solutions, Inc. (NYSE: MHS), the nation's largest pharmacy-benefits management company.

MOST NOTEWORTHY: CVS Corp (CVS), Express Scripts, Inc (ESRX) and Goodrich Petroleum Corp (GDP) were some of today's more notable initiations:

• CVS Corp (NYSE: CVS) was reinstated at Credit Suisse with an Outperform and at JP Morgan with Neutral ratings.

• Express Scripts (NASDAQ: ESRX) was reinstated at Credit Suisse with an Outperform rating, up from its Neutral rating, and resumed at Bank of America with a Buy rating. JP Morgan reinstated Express Scripts share with an Overweight rating.

• Goodrich Petroleum (NYSE: GDP) was initiated with an Overweight rating at JP Morgan.

OTHER INITIATIONS:

• Jefferies initiated Cellcom Israel Ltd (NYSE: CEL) with a Buy rating and $21 target.

• CIBC initiated 3SBio Inc (NASDAQ: SSRX) with a Sector Outperformer rating and $17 target; the firm said 3SBio Inc offers the broadest range of BioGenerics in the Chinese market and views the company as an execution story and country play.

• Cowen started G-III Apparel Group, Ltd (NASDAQ: GIII) with an Outperform rating based on expectations of market share growth to be driven by new brands and products.

• BMO Capital Markets expects Riverbed Technology, Inc (NASDAQ: RVBD) with a Market Perform rating.

• Lazard started Synta Pharmaceuticals Corp (NASDAQ: SNTA) with a Buy rating; Bear Stearns initiated shares of Synta with an Outperform rating.

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

Investors are used to receiving conflicting ideas about what to do with their money, but at the exact same minute, Marketwatch reported two different ideas for Caremark RX, Inc. (NYSE:CMX) shareholders. At 1:58 PM, Michael Baron reported that Express Scripts urges Caremark shareholders to nix CVS deal. After that, or perhaps immediately before, I don't really know, Katherine Hunt reported that CVS urges Caremark shareholders to vote for merger.

CVS Corp. (NYSE:CVS)pointed to the "conditionality and risk" inherent in Express Scripts' offer. Express Scripts (NSADAQ:ESRX) said that "If we discover additional value during due diligence, it is only logical that we could increase our offer."

I don't know about you, but these takeover battles are the most exciting part of following the market. I'll be continuing to follow this one closely.

CVS Corp. (NYSE: CVS) opened at $31.90. So far today the stock has hit a low of $31.81 and a high of $32.28. As of 12:40 this afternoon, CVS is trading at $32.03, up $0.71 (2.3%).

Shares have recovered a bit over the past few months, showing support around $31. Though rival Express Scripts (NASDAQ: ESRX) has increased its offer for the hostile takeover of Caremark Rx (NYSE: CMX), CVS officials say that the CVS buyout offer will likely prevail due to antitrust concerns regarding the Express Scripts offer. The technical indicators for CVS have been bullish but deteriorating, while S&P gives the stock a very positive 5 STARS (out of 5) strong buy rating.

For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $27.50 range. CVS hasn't been below $27.50 in the past year except for a few days in November and has shown support around $30.75. This trade could be risky depending on what happens with the CMX-ESRX-CVS mess, but even if CVS pulls back some, this position could be protected by the strong support just below $28.

Brent Archer is an options analyst and writer at Investors Observer (Free Subscription). DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about.

Express Scripts Inc (NASDAQ: ESRX) upped its offer for Caremark RX Inc (NYSE: CMX) last night. Express, a pure pharmaceutical benefits management company, or PBM, is in a battle with CVS Corporation (NYSE: CVS), the pharmacy chain, over Caremark.

Express supposedly raised its offer over concerns that it will soon receive a second request from regulators. This would most likely mean the deal would not close for another six to nine months. CVS and Caremark have already received regulatory approval with the shareholder vote coming in a few weeks.

This is a bizarre transaction in that a PBM like Caremark has never merged with a pharmacy chain like a CVS. Shareholders believe Caremark management and board is acting in their own best interests rather than the interest of shareholders. Actually, there are few sell-side analysts or shareholders who know the industry well who actually see the business merits of the two companies merging.

Meanwhile, as this battle unfolds, it appears the fundamentals for this industry are improving. Medco and Express both reported very strong results and guided to strong results.

Express' management is very well-respected and most believe would do a very good job working with Caremark. The battle is set for the shareholders' meeting set in the next few weeks. We will see if Express increases their offer again prior to the shareholder meeting.

Yesterday a Delaware judge, Chancellor William B. Chandler III, stepped into a takeover battle between CVS Corp. (NYSE: CVS), CareMark Rx, Inc. (NYSE: CMX), and Express Scripts, Inc. (NYSE: ESRX) because CMX's board has fallen down on the job.

For the last several weeks, I've been a fairly lonely voice in the wilderness (: <) railing against how CMX directors were low-balling its shares to CVS in order to protect CMX's management team. At one point, ESRX's bid was $5 billion above CVS's. I made such comments here, here, here and here.

But in the last week, I've gotten some company -- specifically, Glass, Lewis & Co., CtW Investment Group and Institutional Shareholder Services said that CMX's board is not getting the best deal for its shareholders and urged, before the latest CVS offer, that Caremark shareholders reject the bid.

Yesterday there was a new development. Chandler intervened to delay the shareholder vote on the CVS/CMX deal from February 20 to at least March 9. A major shareholder, Louisiana Municipal Police Employees' Retirement System (LMPERS), sued for more time to consider the CVS offer. The judge granted LMPERS's request after reading an SEC filing in which CMX disclosed that it met with ESRX in 2001, 2003 and most recently in 2005 to review potential transactions -- meetings which Chandler concluded a reasonable shareholder would find "highly relevant." Chandler also set an injunction hearing for February 16, which could possibly halt or delay the CVS deal.