Strategic Hotels & Resorts (NYSE:BEE) focuses on operating upscale and luxury hotels and resorts, mostly in North America and Europe. The portfolio has about 20 properties with more than 10,000 rooms, and the company is structured as a real estate investment trust or REIT. According to the company's website, "Our asset management expertise is what truly distinguishes us."

Well, an analyst for Wachovia (NYSE:WB), Jeffrey Donnelly, has published a very favorable report on Strategic Hotels. In fact, he thinks there could even be a buyout, with possible suitors like the Blackstone and Carlyle.

It certainly looks like the fundamentals of Strategic Hotels are perking up. In the fourth quarter, funds from operations and revenue increased from $9.2 million, or $0.17 per share to $20.3 million, or $0.26 per share. Sales increased from $119.7 million to $242.5 million.

And, no doubt, private equity firms have been targeting leisure properties. But this does not mean a deal will necessarily happen.

Also, Donnelly thinks a deal would be valued at $24-$26 per share. Thus, with the stock price currently at $23.51, there's not much upside left.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

MOST NOTEWORTHY: Some of today's notable downgrades were National City Corp (NCC), Aeroflex Inc (ARXX) and Compass Minerals International (CMP):

• Morgan Stanley cut National City Corp (NYSE: NCC) to Underweight from Equal-Weight with and $35 target to reflect increased losses on the company's remaining subprime loans and slower growth in the Midwest.

• AG Edwards downgraded Aeroflex Inc (NASDAQ: ARXX) to Sell from Buy to reflect the company's acquisition agreement.

• Matrix USA cut Compass Minerals Int'l (NYSE: CMP) to Strong Sell from Buy to reflect weak demand for deicing products.

OTHER DOWNGRADES:

• CIBC downgraded Pathmark Stores Inc (NASDAQ: PTMK) to Sector Perform from Outperformer based on the Great Atlantic & Pacific Tea Co (NYSE: GAP) acquisition.

• UBS cut Apria Healthcare Group Inc (NYSE: AHG) to Reduce from Neutral on valuation.

• Goldman Sachs downgraded Progressive Gaming International Corp (NASDAQ: PGIC) and Strategic Hotels & Resorts Inc (NYSE: BEE) to Sell from Neutral.

• Brean Murray cut Youbet.com (NASDAQ: UBET) to Hold from Buy based on increased competition concerns.

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