Automatic Data Processing, Inc. (NYSE: ADP) Cut to Neutral at Citigroup; Cut to Market Perform at Wells Fargo.
Chesapeake Energy Corporation (NYSE: CHK) Cut to Underweight at JPMorgan.
The Charles Schwab Corporation (NYSE: SCHW) Cut to Neutral at JPMorgan.
Corning Inc. (NYSE: GLW) Cut to Underweight at Morgan Stanley.
E*TRADE Financial Corporation (NASDAQ: ETFC) Cut to Neutral at Goldman Sachs.
General Dynamics Corporation (NYSE: GD) Cut to Perform at Oppenheimer.
General Electric Co. (NYSE: GE) Reiterated Buy with $22 Target at Argus.
Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) Started as Perform at Williams Capital.
Inergy Midstream, L.P. (NYSE: NRGM) Started as Outperform with $26 target at Credit Suisse.
Illinois Tool Works Inc. (NYSE: ITW) Raised to Buy at BofA/ML.
Lam Research Corporation (NASDAQ: LRCX) Maintained Outperform with $56 target price at Credit Suisse.
Life Technologies Corporation (NASDAQ: LIFE) Raised To Outperform From Market Perform By Leerink Swann
Netflix, Inc. (NASDAQ: NFLX) Raised to Buy at Citigroup; Maintained Outperform and raised target to $125 at Credit Suisse.
NVIDIA Corporation (NASDAQ: NVDA) Raised to Positive at Susquehanna.
Ryanair Holdings plc (NASDAQ: RYAAY) Cut to Neutral at Nomura.
Vale S.A. (NYSE: VALE) Cut to Hold at Deutsche Bank.

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JON C. OGG

The unofficial closing bells put the DJIA up nearly 97 points to 12,578.95 (0.78%), the NASDAQ rose nearly 42 points (1.53%) to 2,769.71, and the S&P 500 rose 1.11% or more than 14 points to 1,308.04.

There were several analyst upgrades and downgrades today, including Chesapeake Energy Corp. (NYSE: CHK) cut to ‘hold’ at Brean Murray; Google Inc. (NASDAQ: GOOG) cut to ‘market perform’ at Wells Fargo; The Kroger Co. (NYSE: KR) cut to ‘market perform’ at BMO Capital; Cheniere Energy Inc. (AMEX: LNG) started as ‘outperform’ with a $13.50 target price at Credit Suisse; and Carnival Corp. (NYSE: CCL) maintained as ‘hold’ but estimates cut at Argus.

Earnings reports since markets closed yesterday have led to some price changes as of the last half hour of trading today: Cree Inc. (NASDAQ: CREE) is up 4.3% at $24.33; The Charles Schwab Corp. (NYSE: SCHW) is down -1.3% at $12.00; Fastenal Co. (NASDAQ: FAST) is down -2.8% at $45.48; Goldman Sachs Group Inc. (NYSE: GS) is up 7.5% at $105.03; and State Street Corp. (NYSE: STT) is down -7% at $39.72.

Other standouts from today include the following stocks:

Euro Tech Holdings Co. Ltd. (NASDAQ: CLWT) is up nearly 53% at $3.91. The Hong Kong-based company has announced an 11-for-2 reverse stock split.

Net 1 UEPS Technologies Inc. (NASDAQ: UEPS) is up more than 33% at $8.96. The South African software maker has announced a 5-year deal with the government’s social security agency.

Majesco Entertainment Co. (NASDAQ: COOL) is down more than -27% at $2.17. The video game maker forecast higher sales and marketing costs in 2012.

Ku6 Media Co. Ltd. (NASDAQ: KUTV) is down nearly -18% at $2.71. The Chinese online video company rose more than 150% yesterday on the announcement of deal with Google. Today’s fall is likely due to profit-taking.

We also noted 10 stocks that posted new all-time highs today. These include Apple Inc. (NASDAQ: AAPL), McDonald’s Corp. (NYSE: MCD), and Nike Inc. (NYSE: NKE). See our coverage here.

Stay tuned for Thursday. We have noted the following events on the schedule (all times Eastern):

• 8:30 a.m. – Consumer price index
• 8:30 a.m. – Housing starts
• 8:30 a.m. – Initial unemployment benefits claims
• 10:00 a.m. – Philadelphia Federal Reserve business outlook survey
• 10:30 a.m. – EIA weekly natural gas inventory report
• 11:00 a.m. – EIA weekly petroleum status report
• 4:30 p.m. – Federal Reserve balance sheet and money supply

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Paul Ausick

The unofficial closing bells put the DJIA down nearly 49 points to 12,422.06 (-0.39%), the NASDAQ fell more than 14 points (-0.51%) to 2,710.67, and the S&P 500 fell -0.49% or more than 6 points to 1,289.10.

There were several analyst upgrades and downgrades today, including VMWare Inc. (NYSE: VMW) cut to ‘sell’ with a target price of $80 at Citigroup; American International Group Inc. (NYSE: AIG) started as ‘hold’ at Stifel Nicolaus; The Charles Schwab Corp. (NYSE: SCHW) cut to ‘market perform’ at Wells Fargo; Chesapeake Energy Corp. (NYSE: CHK) reiterated as ‘sell’ with lower estimates at Argus; and Citrix Systems Inc. (NASDAQ: CTXS) raised to ‘buy’ from ‘neutral’ at Citigroup.

Earnings reports since markets closed yesterday have led to some price changes as of the last half hour of trading today: JPMorgan Chase & Co. is down -2.63% at $35.88; SAP AG (NYSE: SAP) is up 2.42% at $54.54; and JDA Software Group Inc. (NASDAQ: JDAS) is down nearly -14% at $28.21.

Other standouts from today include the following stocks:

Georgia Gulf Corp. (NYSE: GGC) is up more than 34% at $32.85. The chemical and home products maker has received a buyout offer of about $1.03 billion ($30/share) from Westlake Chemical Corp. (NYSE: WLK).

Metabolix Inc. (NASDAQ: MBLX) is down about -58% at $2.52, after posting a new 52-week low of $2.51 earlier. The bioscience and chemicals company is suffering from the cancellation of a joint venture with Archer Daniels Midland Co. (NYSE: ADM), which the larger company unexpectedly announced this morning.

Patriot Coal Corp. (NYSE: PCX) is down nearly -13% at $7.87. The coal miner lowered its production forecast and closed several operations. We have more coverage here.

Diamond Foods Inc. (NASDAQ: DMND) is down more than -10% at $29.71. The snack food maker is now the subject of a criminal inquiry related to payments it made to farmers.

Canadian Solar Inc. (NASDAQ: CSIQ) is down more than -9% at $3.19. The China-based solar panel maker is among the group of Chinese makers who are cooling off, probably due to profit taking, after several days of sharp share price increases.

US markets are closed on Monday in observance of the birthday of Martin Luther King, Jr. We have the following events for Tuesday:

• 8:30 a.m. – Empire State manufacturing survey
• 11:30 a.m. – 3- and 6-month Treasury bill auctions

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Have a great long weekend.

Paul Ausick

American International Group, Inc. (NYSE: AIG) Started as Hold at Stifel Nicolaus.
BankUnited, Inc. (NYSE: BKU) Started as Outperform at Wells Fargo.
The Charles Schwab Corporation (NYSE: SCHW) Cut to Market Perform at Wells Fargo.
Chesapeake Energy Corporation (NYSE: CHK) Reiterated Sell and lowered estimates at Argus.
Citrix Systems, Inc. (NASDAQ: CTXS) Raised to Buy from Neutral at Citigroup.
Dr. Pepper Snapple Group, Inc. (NYSE: DPS) Cut to Market Perform at Wells Fargo.
Guess? Inc. (NYSE: GES) Cut to Neutral as Bear of the Day at Zacks.
Humana, Inc. (NYSE: HUM) Raised to Outperform as Bull of the Day at Zacks.
RealNetworks Inc. (NASDAQ: RNWK) maintained Speculative Buy with $15 price target at Canaccord Genuity.
Regions Financial Corporation (NYSE: RF) Started as Market Perform at Wells Fargo.
Titan International, Inc. (NYSE: TWI) named as value stock of the day at Zacks.
VMware Inc. (NYSE: VMW) Cut to Sell with an $80 price target at Citigroup.
Yandex N.V. (NASDAQ: YNDX) Started as Underweight at HSBC.

If you enjoyed the top analyst calls, you can sign up in the box below to join our morning email list to receive news directly in your inbox each morning. We include major analyst upgrades and downgrades, IPO and M&A news, special situation developments, observations on Warren Buffett and key market gurus, as well as special exclusive feature stories.

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JON C. OGG

Foreign investment in China drops for the first time in 28 months. (Reuters)

Holiday sales continue to tick higher, according to the National Retail Federation. (Reuters)

Sony (NYSE: SNE) confirms its 2011 and 2012 targets for PS3 sales. (Reuters)

Amazon.com (NASDAQ: AMZN) shares lose 2011 gains because of concerns about margins. (Reuters)

Lam Research (NASDAQ: LRCX) to buy Novellus Systems (NASDAQ: NVLS) for $3.3 billion. (Reuters)

The SEC will try to appeal a federal ruling that blocked a settlement with Citigroup  (NYSE: C) over toxic mortgage debt.  (WSJ)

Wage increases in China cause the costs of its exports to the U.S. to rise. (WSJ)

Research In Motion (NASDAQ: RIMM) is under pressure to replace senior management. (WSJ)

Shares of Groupon (NASDAQ: GRPN) fall as research firms cut ratings. (WSJ)

Nokia (NYSE: NOK) returns to the U.S. with a $50 smartphone with T-Mobile service. (WSJ)

E-book prices rise quickly. (WSJ)

EU leaders continue to move away from the solid front they had last week. (WSJ)

The NFL signs new nine-year deals with Fox, NBC and CBS, which will pay an average of 65% more than their previous arrangements. (WSJ)

More oil companies seek leases for Gulf of Mexico drilling. (WSJ)

Brazil will try to shutter the operations of Chevron (NYSE: CVX) and Transocean (NYSE: RIG) as the government attempts to collect $11 billion over leak damages. (WSJ)

First Solar (NASDAQ: FSLR) sharply cuts forecasts. (WSJ)

LightSquared’s high-speed internet would hurt GPS signals, according to the federal government. (WSJ)

Credit Agricole sharply cuts expenses in the face of the EU crisis. (WSJ)

Detroit sells $484 million in bonds but at very high rates. (WSJ)

Charles Schwab (NYSE: SCHW) and E*Trade Financial (NASDAQ: ETFC) are hurt by drops in trading volume. (WSJ)

China puts tariffs on U.S. cars with large engines. (NYT)

OPEC increases output levels. (NYT)

IBM (NYSE: IBM) settles an antitrust case with the EU. (NYT)

Foreign-owned banks in the U.S. are losing deposits on a flight to safety. (FT)

Douglas A. McIntyre

Previously, we had suggested that Goldman Sachs Group Inc. (NYSE: GS) or even Morgan Stanley (NYSE: GS) could have been considered as possible acquirers since they had become bank holding companies yet had zero banking operations.  That time has long-passed that either Goldman Sachs or Morgan Stanley would be potential acquirers.

E*TRADE’s review of strategic alternatives started in early August with an intent to maximize shareholder value.  One strategy was a possible sale.  The company’s noted, “…the Board unanimously determined that the continued execution of the company’s business plan is currently the best alternative for increasing stockholder value.”

Steven Freiberg, CEO and Interim Chairman also noted, “We will remain focused on delivering the best investing experience to our customers, strengthening our brokerage business, continuing to improve the performance of our loan portfolio and enhancing our franchise.”

The board of directors must have been looking at its stock charts upside down because continuing its path as is to maximize shareholder value hasn’t worked.  In July this was a $16.00 stock in hope that a deal would come.  Shares closed down 3.4% at $9.48 today, and the after-hours session has E*TRADE down another 4% at $9.10.

E*TRADE got far too creative during the mortgage boom and when the bubble popped it nearly assassinated this company.  Now E*TRADE continues to try to wind down many of its old legacy loans and accounts, and while things have improved there the company has not been able to walk away entirely from its prior follies.

It seems that buyers must have felt the liabilities could still be an unknown or that the black hole just goes too deep.  Its core business is an attractive one, but right now E*TRADE cannot even make good money on customers cash deposits just like its peers with short-term rates at next to zero.

E*TRADE has to remain on its own, and those who were pressing for a buyout will just have to invest in the company based upon its own internal merits.

JON C. OGG

Kass noted on Thursday evening on CNBC that it is his largest position because he thought that Charles Schwab Corp. (NYSE: SCHW) or TD AMERITRADE Holding Corporation (NASDAQ: AMTD) would be an acquirer of the company.

To highlight just how long E*TRADE has been in the buyout camp, we have noted back as far as the days of the crash in 2008 and 2009 that Goldman Sachs Group Inc. (NYSE: GS) or even Morgan Stanley (NYSE: MS), more likely the former rather than the latter, could step in to buy E*TRADE to take care of their “bank holding company status” when you consider that they have no real banking operations to speak of.  We have also noted that this could be bait when shares were far lower and even higher now that the last two months have proved to be so brutal.

This summer Goldman Sachs, in an analyst call (not an investment banker call), noted a higher target due to what it felt was a 30% chance of M&A heading its way.  It was also this summer that we put a maximum value at $20.00 per share in a buyout at the time and Thomson Reuters had a consensus price target objective at the time of roughly $16.50 at the time.  The problem with an E*TRADE buyout today is that its shares have pulled back incredibly hard in recent months losing half of its value since mid-July.

Even after a 2% gain to $9.05 today, the 52-week range is $7.74 to $18.13.  Now analysts have a consensus price target down closer to $14.00.  That old $20.00 max buyout price would have to be lowered.  It might have to be lowered considerably.  Investors just are not willing to value stocks at the same multiples today and a would-be acquirer would be expected to be in the same boat.

E*TRADE is now doubling its sales force to go after more and more of its trading clients for a larger piece of their business.  Retirement plans and other services seem to be the push.  Now that the stock has fallen precipitously, the Thomson Reuters consensus estimates are $0.67 EPS for 2011 and $0.89 EPS for 2012.  This represents a far more fair valuation where a buyer would not have to pay a ridiculous premium nor would a buyer have to pay a ridiculously excessive earnings multiple to acquire E*TRADE.  Still, anything closer to the summer levels might not make that “affordability” grade make the cut.

JON C. OGG

We have gone as far in the past saying that Goldman Sachs Group Inc. (NYSE: GS) might consider making a play for E*TRADE.  That is just not realistic at all in today’s post-blowup financial world. After all, Goldman Sachs is a bank holding company that technically has no real banking operations for the public.  The time has come and gone for that to be a reality.  The other two contenders for making a play are Charles Schwab Corporation (NYSE: SCHW) and Morgan Stanley (NYSE: MS).  Realistically, Morgan Stanley might have a hard time getting approved by regulators to even consider making an acquisition after the financial mess.

One big problem in analyzing the valuation of any of these companies is that there are many legacy accounts that can skew calculated values if you just consider current or active accounts.  There is also the 80/20 rule in business that is probably a 90/10 rule in online brokerages… instead of 80% of the value being based upon 20% of total clients, it may be that 90% of the real value comes from only 10% of the clients.  We have tried to highlight the different calculations from to firm as a result of the reported variations from firm to firm.

E*TRADE Financial Corporation (NASDAQ: ETFC) was screened with a pre-earnings return on equity (ROE) of only about 1.6% and a forward price to earnings multiple of 15.8.  E*TRADE’s market cap was $3.45 billion after the shares recently closed at $15.64 against a 52-week range of $12.24 to $18.13.  The problem is that it just is not cheap.  The company now claims some 4.3 million customer accounts, which included 2.8 million brokerage accounts.  We continue to value these on a brokerage account basis today and its $3.8 billion market cap after today’s 6% gain to $16.64 give a per account value of close to $1,350.00 today.

TD AMERITRADE Holding Corporation (NASDAQ: AMTD) has a return of equity (ROE) of 15.2% and a forward price to earnings multiple of 15.  AMERITRADE’s market cap is $11.2 billion. The shares recently closed at $19.61.  The 52-week price range is $14.42 to $22.85.  TD AMERITRADE has just over 8.2 million total accounts but calls its total funded accounts as being 5.59 million.  If we just use the funded accounts we have a value implication of nearly $2,000.00 per account.

Charles Schwab Corp. (NYSE: SCHW) has a forward price to earnings multiple of 14.9.  Its market cap is $18.6 billion.  The shares recently closed at $15.44.  The 52-week price range is $12.51 to $19.63.  Schwab claims some 8.1 million client brokerage accounts, implying closer to a $2,200.00 per account value.

E*Trade posted earnings yesterday. It reported net income of $47 million on revenue of $518 million. The figures were about what analysts expected, but the stock traded higher by almost 17% to reach $14.72 because of Citadel’s comments. The stock price is still well short of its 52-week high of $18.13 and its two-year high of $19.90, which was reached in September 2009.

Citadel made a basic mistake. It got greedy. E*Trade rivals, Charles Schwab (NASDAQ: SCHW) and TDAmeritrade (NASDAQ: AMTD), also traded higher in the fall of 2009. Each was identified as a potential buyer of E*Trade then, just as they were yesterday. The higher share prices would have made it easier to make the acquisition. Management at each must have been confident in the online brokerage industry after their stocks reached multi-year highs in late 2008.

E*Trade may be too expensive now for Schwab or TDAmeritrade. They would likely use their stocks for at least part of the E*Trade purchase price. But that currency has fallen in value. Schwab has lost 40% of its market cap in less than two years, and it now stands at $18 billion. It might find E*Trade’s value has gone beyond its value as a part of Schwab. E*Trade’s market value is $3.4 billion now. A buyer will have to pay a premium, probably over $5 billion. Schwab’s management may look at E*Trade, which is worth 40% more than it was a year ago, and say it is better off without it.

The stock market appears to be due for a stumble. There is at least a reasonable chance for that because the economy has take a turn for the worst. Schwab and TDAmeritrade will take that into account as they look at a premium valuation for E*Trade, which has earnings sensitive to market movement. Better to pass on a buyout, at least until the lack of a buyer brings shares back down. Citadel will have to wait, perhaps a long time, before it is able to cash out on E*Trade, and the price is likely to be less than it expected yesterday.

Douglas A. McIntyre

June retail sales were strong for most firms in the industry. A notable exception was J.C. Penney (NYSE: JCP which posted figures below expectations. It has hired a senior retail executive from Apple (NASDAQ: AAPL) to turn around its fortunes. The move could not happen soon enough. The stock was down almost 4% for the week.

Charles Schwab (NASDAQ: SCHW) was ordered to pay back investors in its YieldPlus Fund. The fund took undisclosed risks. Schwab share closed the week off by 3.6%.