Analyst Upgrades

• Disney (DIS) to buy from hold at Wunderlich.
• Pike Electric (PIKE) to outperform from market perform at FBR Capital.
• Kindred Healthcare (KND) to overweight from equal weight at Barclays.
• UBS (UBS) to hold from sell at Canaccord.
• Avery Dennison (AVY) and Take-Two (TTWO) to buy from neutral at BofA/Merrill.
• Mercer (MERC) to outperform from market perform at Raymond James.

The Labor Department's fishy report of 9.0% unemployment with only a few thousand jobs created almost didn't even matter today. Earnings gains drove shares and the losses seen in indexes earlier today were reversed by the end of the day with most indexes in positive territory. Everyone is focused on the Super Bowl this weekend.

Here were today's unofficial closing bell levels:


Dow Jones 12,092.15 +29.89 (0.25%)
S&P 500 1,310.87 +3.77 (0.29%)
Nasdaq 2,769.30 +15.42 (0.56%)

Analyst Upgrades

• FedEx (FDX) and Concur Tech (CNQR) to outperform from neutral at RW Baird.
• Hershey (HSY) to outperform from neutral at Credit Suisse.
• Open Text (OTEX) to outperform from sector perform at RBC Capital.
• Bemis (BMS) and Hudson Pacific (HPP) upgraded to buy from hold at KeyBanc.
• InterActiveCorp (IACI) to buy from neutral at BofA/Merrill.
• KB Home (KBH) to neutral from sell at Goldman.
• News Corp. (NWSA) to neutral from underperform at Cowen.

KB Home (KBH) is ending the week on a high note, after the homebuilder comfortably surpassed Wall Street's fiscal fourth-quarter earnings expectations. Bright and early Friday morning, KBH announced quarterly net income of $17.4 million, or 23 cents per share, on revenue of $451 million. Adjusted housing gross margins improved to 19.7% from 19%.

This marks KBH's first quarterly profit, without the aid of tax gains, in almost four years. Analysts were anticipating KBH to swallow a deficit of 17 cents per share on revenue of $441.3 million, so these results definitely qualify as a positive surprise.

Southern Copper (SCCO) closed down 0.5%. Copper futures rose 0.61%, according to Bloomberg. Overall option implied volatility of 36 is near its 26-week average, according to Track Data, suggesting non-directional price movement.

KB Home (KBH) is expected to report Q4 EPS on Jan. 7. KBH January call option implied volatility is at 55, February is at 53, above its 26-week average of 51, according to Track Data, suggesting larger price movement.

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

"Home Prices Are About to Bottom" was the headline for the Barron's cover story the week of July 14, 2008. The story explained that the housing market should level off in many areas of the country by the end of the year.

I have made some equally unfortunate prognostications in my tenure at BloggingStocks, so my purpose is not to poke fun at Barron's but to point out that here we are, over two years later, and it is still debatable whether the housing market has bottomed out.

If you check out the stats at KB Home's (KBH) quote page, you'll notice that it's been doing poorly for a long time, until recently, when, over the last month, it decided to bounce strongly off the 52-week low of $9.43. Today, with about three hours to go before the end of the session, it is higher by almost 3.8% to $12.15 on the back of an earnings report.

Indeed, the chart shows what I'm talking about. And you have to wonder if the strength in the homebuilder will continue. There is one problem: although volume does stand a chance of ultimately going above the average, at the time of this writing, it isn't too impressive.

Housing steps into the spotlight again this coming week. The release of the National Association of Homebuilders Housing Market Index starts out the week on Monday morning. Then on Tuesday morning, look for housing starts data from August. Release of the July FHFA House Price Index is scheduled for Wednesday. And numbers for existing home sales and for new home sales in August are due out Thursday and Friday, respectively. Overall, the housing market is expected to have continued to lose momentum in August, but less dramatically than in July.

Also on the economic calendar this week: Tuesday's FOMC meeting on interest rates, the Conference Board's Leading Economic Indicators Index for August on Thursday, initial jobless claims for last week, and durable goods orders data for August on Friday. No significant changes from the Fed are anticipated, but the leading economic indicators may rise a bit.

Analyst Upgrades

• Jefferies upgraded Computer Sciences (CSC) to buy from hold and raised its target to $53 from $47. The analyst said Computer Sciences' valuation has created one of the best LBO opportunities in several years and could provide a five year IRR of 25+%.
• Keefe Bruyette upgraded Comerica (CMA) to outperform from market perform, citing strength of the company's capital. The firm raised its target for shares to $44 from $43.
• RBC Capital upgraded Nokia (NOK) to outperform from sector perform and raised its price target to $14 from $12. The firm upgraded shares based on valuation, reduced execution risk on software development, and potential catalysts from new devices based on Symbian^3. RBS upgraded Nokia to buy from hold after the company named Stephen Elop as CEO.
• Allstate (ALL) was upgraded to buy from hold at Citigroup.
• Coca-Cola Enterprises (CCE) was upgraded to buy from neutral at BofA/Merrill.
• Moody's (MCO) was upgraded to overweight from neutral at Piper Jaffray.

Today's weakness was a carryover from yesterday's weakness after triple-digit DJIA losses. When you added in a another rise in weekly jobless claims, that kept the bulls from every getting a chance to have much of a vote for the broad markets.

Here were the unofficial closing bell levels:

Dow Jones 10,319.95 -58.88 (-0.57%)
S&P 500 1,083.60 -5.87 (-0.54%)
Nasdaq 2,190.27 -18.36 (-0.83%)

During an earnings season when most stocks have beaten their analyst estimates, Beazer Homes (BZH) came in woefully under expectations with a loss of $27.8 million, or 41 cents per share.

Normally, you would expect news like this, coupled with a housing market that looks shaky at best, to be a major deterrent to investors. But I don't think we should write Beazer off just yet. It could actually be an interesting longer-term buy opportunity. Here's why:

You do not get too many instances where stocks rally for six straight days. This unofficial verdict was up on the day for a seventh day, but this was a sloppy rally today that literally came down to the closing bell. Earnings season got off to a good start, but weak retail data and a lowered 2010 economic recovery target out of the FOMC Minutes took away the gains that were in place earlier today. The good news is that the fears of a double dip recession seem to have been overdone.

Here were today's unofficial closing bell levels:

Dow 10,366.72 +3.70 (0.04%)
S&P 500 1,095.17 -0.17 (-0.02%)
Nasdaq 2,249.84 +7.81 (0.35%)

Top Analyst Calls

Everybody has been wondering what was going to happen to homebuilders once the Federal government's tax credit expired at the end of April. Well, we're starting to find out, and the picture doesn't look good.

Goldman Sachs has downgraded the entire Homebuilders industry from Attractive to Neutral, dropped MDC Holdings Inc. (MDC) from its Conviction Buy List and dropped its price targets on 10 stocks in the industry.

And really, who can blame them?

We've seen new home sales plunge from 504K in April -- right before the tax credit expired -- to 300K in May. We've also watched housing starts and applications for new building permits dry up. Plus, it is getting harder and harder for individuals to qualify for a loan.

KB Home (KBH - option chain) stock is trading lower today after the company announced second-quarter earnings this morning, posting a $30.7 million loss (40 cents per share) on revenue of $374 million. Analysts had forecast a loss of 30 cents per share on revenue of $373 million. If you think this stock 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 KBH.

This morning, KBH opened at $11.90. So far today the stock has hit a high of $11.90 and a low of $11.19. As of 12:30, KBH is trading at $11.30, down $0.90 (-7.5%). The chart for KBH looks neutral and S&P gives KBH a neutral 3 STARS (out of 5) hold ranking.

Analyst Upgrades

• FBR Capital upgraded Halliburton (HAL) to outperform from market perform as it sees less headline risk from the Gulf of Mexico spill following Wednesday's House Energy and Commerce Committee hearing. The firm upped its target for shares to $44 from $35.
• FBR Capital also upgraded Morgan Stanley (MS) to outperform from market perform as it views the valuation as attractive following the recent pullback in shares. The firm maintains a $35 price target for shares.
• Deutsche Bank upgraded Avnet (AVT) to buy from hold on valuation; it views the recent pullback as a buying opportunity. The firm raised its target for shares to $39 from $36.
• U.S. Steel (X) was upgraded to conviction buy from buy at Goldman.
• News Corp. (NWS) was upgraded to buy from hold at Argus.
• Sprint (S) was upgraded to outperform from market perform at Raymond James.