After US markets closed yesterday, S&P lowered its rating on Italy’s sovereign debt from ‘A+’ to ‘A’ with a negative outlook. In its report, S&P specified weakening economic growth prospects, its “fragile” government, and policy differences between the Berlusconi government and the parliament.

In what may be any rating agency’s first criticism at a government’s fiscal austerity measures, the ratings agency noted: “More subdued external demand, government austerity measures, and upward pressure on funding costs in both the public and private sectors will, in our opinion, likely result in weaker growth for the Italian economy compared with our May 2011 base-case expectations, when we revised the outlook to negative. We believe the reduced pace of Italy’s economic activity to date will make the government’s revised fiscal targets difficult to achieve.”  In other words, spending cuts by the Italian government are likely to stall the country’s economic growth. Such a situation will make it nearly impossible for the country to meet its new fiscal targets.

Iron Mountain Inc. (NYSE: IRM) received a ‘B+’ rating from S&P on its proposed $300 million senior subordinated notes due in 2019. The agency also placed a ‘BB-’ rating and a negative outlook on Iron Mountain’s corporate credit.

Discover Financial Services (NYSE: DFS) received a ‘AAA’ rating from S&P on Discover Card Execution Note Services $800 million DiscoverSeries notes. These notes are asset-backed securities ultimately collateralized by “receivables generated from designated Discover Card accounts.”

European Aeronautic Defence and Space Co. N.V. (OTC: EADSY), maker of the Airbus aircraft, received an outlook upgrade from ‘stable’ to ‘positive’ from S&P. The agency reaffirmed its ‘A-/A-2′ long- and short-term corporate credit ratings on the company.

Helix Energy Solutions Group, Inc. (NYSE: HLX), an oil field services firm, received a corporate credit rating boost from ‘B’ to ‘B+ from S&P. The rating on the company’s senior secured debt was also raised to ‘BB-’ and unsecured debt was raised from ‘CCC+’ to ‘B-’.

Elizabeth Arden, Inc. (NASDAQ: RDEN) received an upgrade from ‘stable’ to ‘positive’ from S&P. The agency also affirmed its ‘B+’ corporate credit rating.

Yum! Brands Inc. (NYSE: YUM) received a rating of ‘BBB-’ from S&P on a proposed offering of worth 350 million Chinese renminbi (about $55 million) in senior unsecured debt. The notes will rank equally with existing and future unsecured debt.

Monsanto Co. (NYSE:MON) received an ‘A2′ long-term debt and Prime-1 rating from Moody’s on its commercial paper.

Bill Barrett Corp. (NYSE: BBG) received a ‘B1′ rating from Moody’s on a proposed offering of $300 million in secured notes due 2019. Proceeds will be used to repay borrowing on the company’s revolving credit borrowings which funded acquisitions in 2011 and to support capital spending above operating cash flow. The company’s outlook retained a ‘stable’ rating.

Dynegy Inc. (NYSE: DYN) was placed on Rating Watch Negative by Fitch Ratings following the announcement of a $1.25 billion exchange offer. The offer includes debt with interest rates from 7.125% to 8.750%, all of which will be exchanged for new 10% senior secured notes.

AT&T (NYSE: T) was reaffirmed on Rating Watch Negative by Fitch Ratings. The company’s Issuer Default Ratings and senior unsecured debt rating have been rated ‘A’.

Many debt and credit ratings upgrades are noise, but there is one thing that usually rings true.  As companies see their credit ratings rise, that lowers their borrowing costs, and that in effect raises their earnings.  Credit ratings matter more now that America is no longer “AAA.”

Paul Ausick

A123 Systems, Inc. (NASDAQ: AONE) Raised to Buy at BofA/ML.
AECOM Technology Corporation (NYSE: ACM) Raised to Buy at Argus.
Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) Kept at Buy but Removed from Conviction Buy List at Goldman Sachs.
American Electric Power Co., Inc. (NYSE: AEP) Raised to Buy at BofA/ML.
China Life Insurance Co. Ltd. (NYSE: LFC) Raised to Neutral at Credit Suisse.
Clean Energy Fuels Corp. (NASDAQ: CLNE) Cut to Underperform at BofA/ML.
ConocoPhillips (NYSE: COP) Reiterated Buy and $95 target at Argus.
Covanta Holding Corporation (NYSE: CVA) Raised to Buy at BofA/ML.
Cree Inc. (NASDAQ: CREE) Cut to Underperform at BofA/ML.
EnerNOC, Inc. (NASDAQ: ENOC) Cut to Underperform at BofA/ML.
FXCM Inc. (NYSE: FXCM) Cut to Sell at Citigroup.
Iron Mountain Inc. (NYSE: IRM) Started as Buy at Stifel Nicolaus.
MetLife Inc. (NYSE: MET) Reiterated Buy with $54 target at Argus.
NYSE Euronext Inc. (NYSE: NYX) Cut to Hold at Argus.
Priceline.com Inc. (NASDAQ: PCLN) Maintained Outperform as Bull of the Day at Zacks.
SandRidge Energy, Inc. (NYSE: SD) Started as Neutral at Baird; Started as Outperform at Morgan Keegan.
SemiLEDS Corporation (NASDAQ: LEDS) Cut to Underperform at BofA/ML.
Valero Energy Corporation (NYSE: VLO) Maintained Strong Buy as Value at Zacks.

Washington Federal Inc. (NASDAQ: WFSL) Cut to Underperform as Bear of the Day at Zacks.

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JON C. OGG

Harley fell on weak earnings.

Gilead posted atrocious earnings.

The company is forming a special committee to evaluate its financing, capital, and tax strategies, including conversion into a REIT.  The payouts look to be high as it has committed to a payout of $2.2 billion through 2013, with some $1.12 billion returned to shareholders in the next 12 months via stock repurchases and dividends.

Return on invested capital is now seen as being 11% after tax in 2013 versus about 7.7% in 2010, leaving much room for dividends (and/or buybacks).  It simultaneously is seeking lower capital spending and higher margins.

The company has already announced a $350 million buyback plan and a 200% dividend payout boost that will come to $0.75 per share per year.  The current yield is 2.2% but that is now that shares have jumped up to a new near-term high of $35.00 after nearly a 4% gain today.

Where this will get interesting is if Iron Mountain chooses to leverage itself up higher.  This 2.2% yield is no longer exactly one of the highest yields out there.  The company may be able to boost its dividend to an annual payout of $1.25 per year by the end of 2012 if it lives up to what analysts expect.  If it can milk out more income due to cap-ex cuts and due to streamlining operations, then that payout be even higher.  Let’s use $1.50 for a theoretical payout.  Investors would get a yield based upon today’s price of just over 3.5% at a $1.25 payout based upon today’s price, but investors would get a yield of almost 4.3% at a $1.50 payout.

Keep in mind that these payouts could be higher and could be lower.  While the conversion to a REIT is mentioned, there are probably no assurances that such a move is locked in.  It would seem a logical move, but we have seen the market interrupt more restructuring plans to always know that there is no free lunch.

There are some risks and opportunities here as well.  The company is evaluating its digital business strategy as part of the move.  It is also fine tuning its international and domestic markets where it can have a leadership position or already has a #1 or #2 position in market share.  That means that growth could come just as easily as divesting assets in many markets.  That brings risk and opportunity.

One last thing for investors to consider here is that much of the great benefits of this restructuring have already been realized.  Shares were around $25,00 as recently as early March.  Shares then went to $28.00, then to $30.00 and higher.  Now we are at $35.00 for a gain of 40% in about six weeks at the same time that stocks have gone from hot to choppy.

Much depends here upon how much more value can be milked out of the company.  And much of the gain has already been realized.

JON C. OGG

Arcelor Mittal (NYSE: MT) Raised to Buy at Goldman Sachs.
BMC Software Inc. (NYSE: BMC) Cut to Hold at Citigroup.
Chimera Investment Corporation (NYSE: CIM) Cut to Market Perform at KBW.
Community Health Systems, Inc. (NYSE: CYH) Cut to Perform at Oppenheimer.
Dynegy Inc. (NYSE: DYN) Reiterated Hold at Argus.
Evergreen Solar Inc. (NASDAQ: ESLR) Cut to Sell at Citigroup.
Everest Re Group, Ltd. (NYSE: RE) named as Bear of the Day at Zacks.
Gap Inc. (NYSE: GPS) Cut to Neutral at BofA/ML; Cut to Sell at Goldman Sachs.
Genuine Parts Company (NYSE: GPC) Reiterated Buy at Argus.
Google Inc. (NASDAQ: GOOG) Maintained Buy but cut estimates at Argus.
Infosys Technologies Limited (NASDAQ: INFY) Cut to Neutral at Credit Suisse;target and estimates cut at HSBC.
J.C. Penney Co., Inc. (NYSE: JCP) named Bull of the Day at Zacks.
J.P. Morgan Chase & Co. (NYSE: JPM) Reiterated Hold at Argus.
Iron Mountain Inc. (NYSE: IRM) Cut to Hold at Citigroup.
KB Home (NYSE: KBH) Raised to Neutral at Credit Suisse.
Kraft Foods Inc. (NYSE: KFT) Cut to Equal-Weight at Morgan Stanley.
Marvell Technology Group Ltd. (NASDAQ: MRVL) Cut to Neutral at Susquehanna.
PG & E Corp. (NYSE: PCG) Raised to Outperform at Credit Suisse.

If you are interested in the top research upgrades and downgrades from last week, those include CYH, GOOG, GTXI, MPEL, KWK, RIG, SLW, RGLD, and THC.

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JON C. OGG

Shares in Starbucks rose sharply as it set a distribution deal with Green Mountain Coffee Roasters (NASDAQ: GMCR). GMCR shares rose as much as 40%. Western Digital moved up as it bought the Hitachi’s Global Storage for $3.4 billion.

Sprint-Nextel (NYSE: S) traded up as the media reported a potential merger with No.4 US wireless carrier T-Mobile. Sprint will not be able to compete on its own against AT&T Wireless and Verizon Wireless on its own.

Douglas A. McIntyre

This morning came an SEC filing from Elliott Management Corporation for the funds that it manages that the fund has submitted a letter to the Iron Mountain Incorporated (NYSE: IRM) board of directors.

Elliott is the beneficial owner of just under 5% of Iron Mountain’s common stock and it has called for a strategic review of Iron Mountain’s capital allocation and operational efficiency. The group has also submitted a minority slate of four independent nominees to join the Iron Mountain board of directors as follows:

• Ted Antenucci of ProLogis,
• Robert Levenson of Lenox Capital,
• Allen Loren as former Chairman of D&B,
• Harvey Schulweis of Niantic Partners.

What is so interesting is that Elliott wants to see a conversion here to a REIT as one possibility.  The firm’s SEC filing shows a full review of its plans and possibilities, but the chart here with the expected and potential values is considerably higher if you look at their math only.

Elliot’s full SEC filing is here. Iron Mountain issued a statement this morning after the open that it previously disclosed that its board will evaluate the firm’s proposal and “make a recommendation in due course.”  The company also noted that it grew revenue by 4% to $3.1 billion in 2010 with growth in international markets.  It also noted how it grew the dividend by 200% and that is where the near-3% yield came from while it continued to buy back shares.

If you look at the table above, the projected values are impressive even if you consider that shares hit a 52-week high.  The lowest projected value is $34.20 per share and the highest value is $76.92 per share.  It is up to you whether you believe the projections, but those are still impressive.

We took a look at expectations to see what a 90% REIT payout of income would look like.  While there is a difference of GAAP and non-GAAP, Thomson Reuters has estimates of $1.26 EPS for 2011 and $1.44 EPS for 2012.  The dividend yield based upon today’s prices would be north of 4% if you base-line all of the conversion costs and assume straight math.  Admittedly, that is something that may have ‘one-time charges’ that have to be considered before the calculations can be made.

Iron Mountain shares are trading up about 6.5% at $28.00 and shares did hit a 52-week high of $30.57 today.  The current yield is about 2.95% and shares were above $35.00 back in late-2007.  Maybe Buffett should have stuck around longer than he did.

JON C. OGG

Ingersoll-Rand (NYSE: IR) 636,600 shares, WAY DOWN YET AGAIN… was over 5.6 million before and was 7.78 million over a year ago.
Johnson & Johnson (NYSE: JNJ) is a HIGHER POSITION listed as over 42.62 million shares; that is another increase in J&J even though well under the 62 million at the peak.
Kraft Foods (NYSE: KFT) is 105.21 million, SAME AS BEFORE after having been cut and down from the 138+ million before he was critical of the Cadbury deal.
Lowe’s Companies (NYSE: LOW) 6.5 million shares, SAME AS BEFORE.
M&T Bank Corp. (NYSE: MTB) is 5.363 million, SAME AS BEFORE after having been cut before then.
Moody’s Corp. (NYSE: MCO) is a LOWER POSITION AGAIN at 28.87+ million shares; down from 30.783 million before after several prior decreased positions.
Nalco Holding (NYSE: NLC) 6,142,300 shares; DOWN FROM PRIOR 9.15 million shares.
Nestle ADR is 3.4 million shares, SAME AS BEFORE.
Nike Inc. (NYSE: NKE) is a DECREASED POSITION of 3,642,929 shares; down from 7.641 million.
Procter & Gamble (NYSE: PG) is an DECREASED POSITION at over 76.7 million shares; versus just over 78 million the quarter before.  That is still well under the peak in recent times of 96.3 million shares.

Harley-Davidson, Inc. (NYSE: HOG) is not listed but was a not common stock so is not included in these filings; Buffett still likely holds the preferred shares and warrants.

Home Depot Inc. (NYSE: HD) HAS BEEEN ELIMINATED; previous holdings showed 2.757 million.

Republic Services Inc. (NYSE: RSG) HAS BEEN ELIMINATED after having been 10.827 million.

NRG Energy Inc. (NYSE: NRG) HAS BEEN ELIMINATED as it was 6 million shares before.

Iron Mountain (NYSE: IRM) had been increasing in the prior quarters but IT IS GONE and not listed as a holding any longer versus 8 million before.

BUFFETT HOLDINGS A to G

BUFFETT HOLDINGS S to Z

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JON C. OGG

We have offered color on each with applicable data on how each compares to size and volume, along with other statistical reference.

PPG Industries Inc. (NYSE: PPG) approved an additional 10 million shares of outstanding common stock, effective immediately and without an expiration.  Back in December 2009,  PPG authorized 5 million shares in a buyback and approximately 3.1 million shares of that plan are still available for repurchase.  Average volume here is 1.2 million shares and the market cap is $12.65 billion.  This is large in dollar terms, but not a massive game-changer on its float if it buys shares back at roughly the same rate it has.  At $76.60, the 52-week range is $55.89 to $77.95.

Natural gas distributor ONEOK Inc. (NYSE: OKE) has approved $750 million over a three year period.  The market cap here is $5.33 billion and with shares at $50.05 the 52-week trading range is $29.56 to $50.85.  This buyback is large in size and large in scope as the current share price would retire 14% of the stock based on today’s prices and the buyback represents over 22 days worth of trading volume.

Cypress Semiconductor Corporation (NYSE: CY) may have found an alternative to M&A.  After announcing a buyback plan of up to $600 million, the market cap today is only about $2.15 billion.  At $13.35, the 52-week trading range is $8.05 to $13.89.  This won’t happen overnight as the cash and equivalents on the books come in at about $279 million.

eBay Inc. (NASDAQ: EBAY) rose after earnings, but the buyback and leveraging of the books may have contributed more than anything here along with $300 million spent buying back stock in the last quarter.  eBay said that the company authorized up to $2 billion for additional share buybacks.  It also authorized a commercial paper program of up to $1 billion and has approved the sale of up to $1.5 billion in term-debt financing under an existing shelf registration.

Weight Watchers International, Inc. (NYSE: WTW) approved a buyback plan of up to $250 million, which is a combination and add-on to a prior share buyback plan.  This represents 10% of the implied shares that could be bought back and at current prices it represents almost 29-days worth of volume.

Analog Devices Inc. (NYSE: ADI) Started as Neutral at Sterne Agee.
ASML Holding (NASDAQ: ASML) Cut to Hold at S&P Equity Research.
Baidu Inc. (NASDAQ: BIDU) Maintained Buy but Target raised To $115 from $93 at Citigroup.
Humana Inc. (NYSE: HUM) Started as Positive at Susquehanna.
Iron Mountain Inc. (NYSE: IRM) Cut to Market Perform at Wells Fargo.
Itron Inc. (NASDAQ: ITRI) Raised to Hold from Sell at Stifel Nicolaus.
Nabors Industries (NYSE: NBR) Started as Perform at Oppenheimer.
Patterson-UTI Energy (NASDAQ: PTEN) Started as Perform at Oppenheimer.
Petroleo Brasileiro (NYSE: PBR), or Petrobras, Cut to Equal-Weight at Barclays.
SandRidge Energy, Inc. (NYSE: SD) Started as Hold at KeyBanc.
Tesoro Corporation (NYSE: TSO) Cut to Underperform at Raymond James.
Texas Instruments Inc. (NYSE: TXN) Started as Neutral at Sterne Agee.
Viacom, Inc. (NYSE: VIA) Raised to Buy at Janney; Started as buy with $44 target at Nomura.
Walt Disney Co. (NYSE: DIS) Started as Buy with $40.50 Target at Nomura.

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG