Earnings reports continue to dribble in as the quarter winds down. Much of the attention this week will be on homebuilders KB Home (NYSE: KBH) and Lennar Corp. (NYSE: LEN) as investors look for any sign that the housing sector has bottomed (home sales numbers are also due out this week; see below). Analysts surveyed by Thomson Financial anticipate that both companies will report that they narrowed their losses in the most recent quarter.

KB Home's expected $1.25 per share loss, on revenue of $725.5 million, compares to the previous quarter loss of $3.30 and to a year-ago loss of $6.19. However, KB Home's losses in the past few quarters have been deeper than expected. The Los Angeles-based homebuilder's long-range earnings growth forecast is 10.5%, less than the S&P 500. Analysts continue to recommend holding KB Home, and have for at least 120 days. Shares, however, reached a new 52-week high of $31.69 on Friday, and they are up 10.5% year to date.

Lennar is expected to post a loss of 52 cents per share, on revenue of $1.1 billion. That compares to the previous quarter's per-share loss of 76 cents and to a year-ago loss of $3.25. While Lennar also has tended in the past few quarters to miss expectations, the Miami-based company managed a positive surprise in the first quarter of 2008. Lennar's long-range earnings growth forecast is 10.3%, about the same as KB Home's. Analysts also recommend holding Lennar. Friday, shares of Lennar also reached a 52-week high, $27.75, but they are down 6.4% year to date.

MOST NOTEWORTHY: Micron, Chico's FAS and Lifetime Brands were today's noteworthy initiations:

• Oppenheimer assumed Micron (NYSE: MU) with an Outperform rating and $9.50 target, as they believe price declines in the DRAM market moderated in 2H of the December quarter and that concerns of oversupply are already priced into shares.
  
• Stanford believes shares of Chico's FAS (NYSE: CHS) will remain under pressure over the next three to six months given the adverse economic conditions and the company's "less-than-exciting" fashion assortment. The firm started shares with a Hold rating and $10 target.
  
• Lifetime Brands (NASDAQ: LCUT) was initiated with a Neutral rating at SunTrust. The firm prefers to wait for greater visibility on the U.S. consumer spending environment before becoming more constructive on the name.

OTHER INITIATIONS:

• Soleil initiated Worthington (NYSE: WOR) with a Hold rating.
  
• Jefferies started Esterline Technologies (NYSE: ESL) with a Buy rating and $58 target.
  
• Oppenheimer assumed Spansion (NASDAQ: SPSN) with a Perform rating.

MOST NOTEWORTHY: Lululemon (LULU) and Worthington (WOR) were today's noteworthy initiations:

• RBC Capital views Lululemon (NASDAQ: LULU), which IPO'd today, as unique opportunity to participate in an early stage, retail growth story, starting shares with an Outperform rating and $23 target.

• Worthington (NYSE: WOR) is likely to continue to have headwinds in the near-term, according to CIBC; They believe shares could be a takeover target, initiating shares with a Sector Performer rating and $24 target...

OTHER INITIATIONS:

• Bon-Ton Stores (NASDAQ: BONT) was initiated with a Neutral at First Albany.

• William Blair started shares of Capella Education (NASDAQ: CPLA) with an Outperform rating.

• Warner Music Group (NYSE: WMG) was reinstated with a Neutral rating at Goldman Sachs.

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

MOST NOTEWORTHY: The more noteworthy downgrades today came from Calyon, which cut five companies in the oil services and equipment sector:

• Calyon is taking a more cautious stance due to valuations in the sector. The firm believes strong fundamentals are now reflected in share prices. As such, Calyon downgraded Global Industries, Ltd (NASDAQ: GLBL), Ensco International Inc (NYSE: ESV), Transocean Inc (NYSE: RIG) and Schlumberger Ltd (NYSE: SLB) to Add from Neutral and downgraded Gerber Scientific, Inc (NYSE: GRB) to Neutral from Add...

OTHER DOWNGRADES:

• Piper Jaffray cut ValueClick, Inc (NASDAQ: VCLK) to Market Perform from Outperform.

• UBS cut Lyondell Chemical Co (NYSE: LYO) and IndyMac Bancorp, Inc (NYSE: IMB) to Neutral from Buy.

• Goldman downgraded Worthington Industries, Inc (NYSE: WOR) to Sell from Neutral.

• Matrix USA cut Allergan, Inc (NYSE: AGN) to Sell from Hold and Fifth Third Bancorp (NASDAQ: FITB) was downgraded to Underperform from Market Perform at Keefe Bruyette.

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

MOST NOTEWORTHY: The Entertainment Sector was the most notable downgrade today, made by Bank of America.

• The Entertainment Sector was downgraded to Market Weight from Overweight from Bank of America, citing valuation, given less upside to their targets. Bank of America did not make any changes to their individual stock ratings and kept News Corp (NYSE: NWS) as their Focus Stock.

OTHER DOWNGRADES:

• Deutsche Bank downgraded Level 3 Communications (NASDAQ: LVLT) to Sell from Hold, citing valuation. The firm recommended investors swap into Time Warner Telecom (NASDAQ: TWTC) instead.

• Prudential downgraded shares of Caremark RX (NYSE: CMX) to Neutral from Overweight. The firm doesn't believe the offer by CVS Corp (NYSE: CVS) for a $2 special dividend and the promise to repurchase 150M shares by the new company benefits Caremark RX shareholders as much as a simple increase in shares or cash from CVS would have.

• Matrix USA downgraded Worthington Industries (NYSE: WOR) to Sell from Hold, citing the slowing demand for steel processing and metal framing.

• CIBC downgraded shares of Commerce Bancorp (NYSE: CBH) to Sector Performer from Outperformer on increased regulatory uncertainty following the company's announcement that it is being investigated by the Office of the Comptroller of the Currency.

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

Note: The Daily Option Update is provided by Options Specialist Paul Foster of theflyonthewall.com.

U.S. stocks closed higher as interest rates were stable on higher energy prices. The Dow Jones rallied to another, new, all-time record. The Dow gained 0.87%, NASDAQ 100 rose 1.00%, S&P 500 rose 0.95%, and 10-year bond rate is at 4.5950%. The CBOE VIX was dropped -0.30 to 9.88. The VIX traded down to 9.64 - a 13-year low - this morning.

Worthington's Implied Volatility & Volume Spike Suggests Price Fluctuations

Worthington (NYSE: WOR], a diversified metal processing company, closed up $2.02 to $20.32. WOR has a market cap of $1.7B with long term debt of $245M. WOR reported 2006 revenue of $2.8B. Prudential said "recently Ispat [NYSE: MT] has made public statements indicating an interest in owning steel distribution assets in the USA." WOR call option volume of 10,852 contracts compares to put volume of 5,811 contracts. WOR January option implied volatility of 51 is above its 26-week average of 37 according to Track Data, suggesting larger price fluctuations.

GMX Resources' Puts Vvolume & Implied Volatility Increases On Sell-off

GMX Resources (NYSE:GMXR), an independent natural gas producer headquartered in Oklahoma City, Oklahoma, closed down -$2.80 to $41.85. GMXR call option volume of 1,625 contracts compares to put volume of 2,568 contracts. GMXR January option implied volatility of 67 is above its 26-week average of 61 according to Track Data, suggesting larger price risks.

Option volume leaders Thursday were Advanced Micro (NYSE: AMD), Research in Motion (NYSE: RIMM), Citigroup (NYSE: C) and Microsoft (NYSE: MSFT).