MOST NOTEWORTHY: Royal Caribbean, Alkermes and ASML Holdings were today's noteworthy downgrades:
Morgan Stanley downgraded shares of Royal Caribbean (NYSE: RCL) to Equal Weight from Overweight to reflect margin concerns due to the high oil prices and lowered their target to $37 from $40. However, the firm maintains an Overweight rating on rival Carnival (NYSE: CCL).
Baird downgraded Alkermes (NASDAQ: ALKS) to Neutral from Outperform following the company's reduced Risperdal Consta guidance. The firm does not recommend buying shares.
UBS cut ASML Holdings (NASDAQ: ASML) to Neutral from Buy to reflect order uncertainty heading into 2009.
OTHER DOWNGRADES:
U.S. Airways (NYSE: LCC) was cut at Credit Suisse to Underperform from Outperform.
MOST NOTEWORTHY: The Restaurant Sector, Blockbuster and Plexus were today's noteworthy upgrades:
Bear Stearns upgraded the Restaurant Sector to Market Weight from Underweight citing better investor sentiment following Fed rate cuts and the economic stimulus plan; upgraded shares include Brinker International (NYSE: EAT), Cheesecake Factory (NASDAQ: CAKE) and Darden Restaurants (NYSE: DRI).
JP Morgan upgraded shares of Blockbuster (NYSE: BBI) to Overweight from Neutral ahead of the company's Q4 results on March 6, as they believe the quarter will be at least in-line and 2008 guidance will be above Street expectations.
Plexus (NASDAQ: PLXS) was raised to Outperform from Neutral at Credit Suisse as they believe current quarter sales and bookings are tracking ahead.
OTHER UPGRADES:
Maxwell Technologies (NASDAQ: MXWL) was upgraded to Market Perform from Market Underperform at JMP Securities.
The firm also raised Sotheby's (NYSE: BID) to Market Outperform from Market Perform.
Goldman Sachs added Allianz AG (NYSE: AZ) to its Conviction Buy List.
A fund affiliated with restaurant super-investor Nelson Peltz has acquired a 14% stake in Cheesecake Factory (NASDAQ: CAKE), sending shares of the dining chain up 10% on Wednesday.
The company said that it "has had a preliminary conversation with Triarc (Pelz's firm) already, and looks forward to continuing that dialogue."
According (subscription required) to the Wall Street Journal, "Mr. Peltz has bought stakes in several other restaurant and food companies, includingWendy's International Inc.(NYSE: WEN) and H.J. Heinz Co (NYSE: HNZ). At those companies, he has pressed directors and executives to sell brands, increase marketing or otherwise change their strategies in an effort to raise their stock prices. Mr. Peltz has said he prefers to work with existing management to effect change, though in the past his involvement has prompted reshuffling of company management and boards."
Cheesecake Factory has struggled to provide investors with strong returns over the past few years, and was scraping a multi-year low before the Petlz announcement sent the stock up.
It's a bad sign for restaurants: they're handing out coupons in an effort to lure reticent diners, who are nervous about gas prices, the economy and, of course, housing.
According to the USA Today, Ruby Tuesday is offering $5 off two dinner entrees, IHOP (NYSE: IHP) franchisees are handing out two-for-one coupons, Darden's (NYSE: DRI) Smoky Bones is giving diners $5 off $15 orders, and T.G.I. Friday's is giving $5 "Bonus Bites" to those who purchase $25 gift cards.
So what's an investor to do? High gas prices and housing woes are most likely to weigh on the minds of middle-class consumers -- a wealthier diner probably isn't going to let his restaurant plans be interrupted by transportation costs.
Cheescake Factory (NASDAQ: CAKE) has seen its share prices slide as traffic growth has slowed. The company has scaled back its expansion plans and is using the extra cash to repurchase stock. Higher dairy prices have affected gross margins but, long-term, there's a lot to like here. The company has a strong brand, lots of room for expansion, and a much higher average check than a lot of the fast casual chains that are struggling.
A mall operator's efforts to prevent the chain from opening in a competitor's location underscores the company's strength: Cheesecake Factory is a destination in a way that lesser chains like Applebee's and Friday's aren't.
A mall developer affiliated with Cheesecake Factory (NASDAQ: CAKE) just got $74 million richer after a jury found that the owner of the Glendale Galleria Mall attempted to block the chain from opening a location in the competing mall. And that's just the beginning.
According to The New York Times, "The Galleria's owner, General Growth Properties, is also facing the prospect of substantial punitive damages because the jury found the company acted with "malice, oppression or fraud" by interfering with negotiations between the restaurant chain and Caruso Affiliated Holdings, the developer of the new shopping center. The punitive damage phase begins on Tuesday."
With the restaurateur's shares languishing near a multi-year low, this could be a good time to look anew at this once-hot growth stock.
The company enjoys phenomenal per-store sales and profitability -- they're nearly always full and the food is pretty expensive -- and currently has around 123 stores. There could be a lot of growth left to be had here. And it all comes at just 20 times earnings.
And the lawsuit also highlights the company's competitive strength: The brand is strong enough that General Growth Properties sought to stop the company from opening a location at a rival's mall. Can you imagine this happening with Applebee's or a similar second-tier chain? This lawsuit shows just how powerful of a draw Cheesecake Factory is.
Cheesecake Factory Inc. (NASDAQ: CAKE) shares are trading higher today after an analyst with SunTrust Robinson Humphrey upgraded CAKE from Neutral to Buy. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on CAKE.
After hitting a one-year high of $29.78 in April, the stock hit a one-year low of 21.45 on Friday. CAKE opened Monday morning at $22.03. So far today, the stock has hit a low of $21.98 and a high of $22.42. As of 11:05, CAKE is trading at $22.27, up $0.61 (2.8%). The chart for CAKE looks bearish and steady, while S&P gives the stock a 3 STARS (out of 5) neutral rating.
For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $20 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think, but still leverage nice returns. For this particular trade, we will make a 5.3% return in just seven weeks as long as CAKE is above $20 at December expiration. Cheesecake Factory would have to fall by more than 10% before we would start to lose money. Learn more about this type of trade here.
MOST NOTEWORTHY: The restaurant sector, American Semiconductor and First Solar were today's noteworthy initiations:
Friedman Billings resumed coverage of Cheesecake Factory (NASDAQ: CAKE) and Yum! Brands (NYSE: YUM) with Outperform ratings and a $30 target and a $46 target and Applebee's (NASDAQ: APPB) with a Market Perform rating and $25.50 target.
American Superconductor (NASDAQ: AMSC) was initiated with a Buy rating and $33 target at Jefferies, as they believe repeat orders for wind turbine electrical systems could drive rapid revenue growth from 2008-2010.
CIBC resumed coverage of First Solar (NASDAQ: FSLR) with a Sector Performer rating, as they believe shares are already pricing in the company's 2009 EPS potential.
OTHER INITIATIONS:
Morgan Stanley resumed coverage of Cablevision (NYSE: CVC) with an Underweight rating.
US Steel (NYSE: X) was initiated with a Sector Performer rating and $117 target at CIBC.
JP Morgan started SunPower (NASDAQ: SPWR) with an Overweight rating and Evergreen Solar (ESLR) with a Neutral rating.
How can a company emerge from bankruptcy and then, just about immediately, start looking for acquisition candidates? Isn't that like heading to The Cheesecake Factory, Incorporated (NASDAQ: CAKE) after the gastric bypass?
And yet Delta Air Lines, Inc. (NYSE: DAL) CEO Richard Anderson says the company is on the prowl. According (subscription required) to The Wall Street Journal, "Activist shareholders have been stirring the pot, too. Pardus Capital management, a big holder of UAL and Delta, is agitating for consolidation behind the scenes, a person familiar with the matter says. Meantime, an Icelandic investment fund has started pressing for change at AMR, which prompted the U.S.'s biggest carrier this week to say it is exploring options, including the splitting off of its frequent-flier business."
In most scenarios, it's a lot better to be the shareholder being bought out than a shareholder in the company doing the buying. This would appear to be no exception. With more labor-friendly forces likely to be taking control in Washington, and no end in sight to soaring gasoline prices, the airline industry is likely to face major challenges going forward.
Mergers and acquisition have a way of making problems worse, not better.
MOST NOTEWORTHY: Countrywide Financial (CFC), Brandywine Realty Trust (BDN), Manhattan Associates (MANH), Spectrum Pharmaceuticals (SPPI) and Amazon.com (AMZN) were today's noteworthy upgrades:
Keefe Bruyette upgraded shares of Countrywide Financial (NYSE: CFC) to Market Perform from Underperform on valuation.
Brandywine Realty Trust (NYSE: BDN) was upgraded at Wachovia to Market Perform from Underperform based on pipeline progress and valuation.
JP Morgan upgraded Manhattan Associates (NASDAQ: MANH) to Neutral from Underweight following better-than-expected Q2 results.
Spectrum Pharmaceuticals (NASDAQ: SPPI) was upgraded to Hold from Sell at Brean Murry, expecting shares to remain stable into the spected Phase III initiation with Ozarelix coming in Q4.
Amazon.com (NASDAQ: AMZN) was upgraded by a host of companies following the strong quarter and margin growth, including JP Morgan, which upgraded shares to Neutral from Underperform. Bear Stearns upgraded shares to Peer Perform from Underperform, Lehman upgraded shares to Equal Weight from Underweight and Credit Suisse upgraded shares to Outperform from Neutral...
As Jonathan Berr reported minutes ago, Cheesecake Factory (NASDAQ: CAKE) is among the tens of names to travel into the earnings confessional after today's closing bell. The company announced second-quarter profit of $23.7 million, or 33 cents per share, up from year-ago results of $23.4 million (30 cents per share). Revenue jumped 16% higher during the period to $373.2 million, and same-restaurant sales were up 1.1%.
Both of the key figures - per-share earnings and revenue - were higher than analysts' respective estimates of 31 cents and $372 million.
During the three-month period, the company opened two new locations and is on track to open 21 new restaurants by the end of 2007.
MOST NOTEWORTHY: Cheesecake Factory (CAKE), Jabil Circuit (JBL), MGM Mirage (MGM), Darden Restaurants (DRI) and Crocs (CROX) were today's more noteworthy upgrades:
Robinson Humphries upgraded Cheesecake Factory (NASDAQ: CAKE) to Neutral from Reduce citing limited downside risk.
Jabil Circuit (NYSE: JBL) was raised to Outperform from Neutral at Credit Suisse and to Outperform from Sector Perform at RBC Capital based on its better-than-expected Q3 report.
CIBC upgraded MGM Mirage (NYSE: MGM) to Sector Outperform from Sector Perform and gives the odds of a takeout at 50/50 but said business remains healthy and that the value of Las Vegas Strip assets should continue to rise for the next several years. Susquehanna said Kerkorian's decision not to pursue the Bellagio and CityCenter assets is a strong vote of confidence in MGM's management to create shareholder value and upgraded shares to Positive from Neutral.
Darden Restaurants (NYSE: DRI) was upgraded to Buy from Hold at Matrix based on management's positive steps to improve economic profit by selling off its under-performing units.
ThinkEquity upgraded Crocs (NASDAQ: CROX) to Buy from Accumulate on expectations that sales will continue to be strong driven by new product introductions, as well as retail doors and square footage growth...
OTHER UPGRADES:
Goldman upgraded Kraft Foods (NYSE: KFT) to Neutral from Sell.
Baird upgraded Pentair (NYSE: PNR) to Neutral from Underperform.
Citigroup upgraded AES Corp (NYSE: AES) to Buy from Hold.
Credit Suisse upgraded Sohu.com (NASDAQ: SOHU) to Outperform from Neutral.
Raymond James upgraded Pier 1 Imports (NYSE: PIR) to Outperform from Market Perform.
Earlier today, Bear Stearns downgraded shares of Cheesecake Factory to Peer Perform from Outperform on the news. Bear Stearns expected Cheesecake to show revenue growth of 16-17%, or 34c per share. CIBC World Markets followed suit and downgraded shares to Sector Perform from Outperform on the news.
Raymond James cut shares to Outperform from Strong Buy, expecting shares of the restaurant to trade lower in the near-term. The analyst still considered Cheesecake a good long-term buy, given the likelihood that dairy prices will retreat in time.
MOST NOTEWORTHY: Cheesecake Factory (CAKE), Buffalo Wild Wings (BWLD), Alltel (AT), Home Depot (HD) and Nokia (NOK) were today's more noteworthy downgrades:
Cheesecake Factory (NASDAQ: CAKE) was downgraded to Sector Perform from Outperform at CIBC, to Outperform from Strong Buy at Raymond James and to Peer Perform from Outperform at Bear Stearns after the company reduced its second quarter guidance.
Lehman downgraded Alltel Corp (NYSE: AT) to Equal Weight from Overweight as the firm doesn't expect a competing bid for the company.
Home Depot (NYSE: HD) was cut to Market Perform from Outperform following yesterday's rally and feels that with the HD sale out of the way, the focus will now turn to Home Depot's ability to grow in the challenging do-it-yourself retail market. Goldman cut Nokia to Neutral from Buy on valuation...
OTHER DOWNGRADES:
JP Morgan cut Headwaters (NYSE: HW) to Underweight from Neutral.
Banc of America downgraded shares of both Nike and Foot Locker to Neutral from Buy, as the firm believes industry pressures in the U.S. could more than offset the potential turn in Europe and benefit from the 2008 Olympics.
Cowen downgraded shares of ADTRAN, Bookham and Tellabs to Neutral from Outperform.
Goldman Sachs also downgraded shares of Tellabs, to Sell from Neutral, as the firm believes the stock fully discounts the expected sales and margin improvement.
OTHER DOWNGRADES:
Allergan Inc (NYSE: AGN) was downgraded to Equal Weight from Overweight at Morgan Stanley citing limited upside.
Lehman downgraded shares of The First American Corporation (NYSE: FAF) to Equal-Weight from Overweight on increasing risk to the company's title margin and regulatory concerns.
Matrix USA downgraded shares of Lowe's Companies Inc (NYSE: LOW) to Buy from Strong Buy on valuation.
Jim Cramer's "private equity buyout target" tonight was Cheesecake Factory (NASDAQ:CAKE). He doesn't care that the company is up 10% after earnings and he doesn't think it is too late to get on board. He likes that the cash flows aren't living up to their potentials. He thinks this would be easy to turn around. CAKE can actually raise its prices because they are low for quantity and quality. Privateers could bolster its supply side, do a little more brand promotion via advertising, add more stores and close underperforming stores. In addition to looking attractive to private equity, the Cheesecake Factory CEO is the son of the company's founders and the shares should be a lot higher.
Cramer did claim that he is practicing "sane investing in an insane world" and he stressed to only buy companies that you want to own anyway. So at least he specified this after a couple nights of forcing the goo-goo-ga-ga love for buyouts the last two nights. Thankfully, he restated that tonight. You HAVE TO like a stock you buy for the fundamentals (or at least the technicals) instead of just for a buyout pick. The one thing that is funny about this pick is that I was doing some work on this one for my own reviews of it as a buy on its own, without being a buyout potential. I also determined it could raise prices, like Cramer noted, but I thought of something else as well. Food is a huge portion of a restaurant's operating costs, and if you have ever ordered an entrée at Cheesecake Factory or at Grand Lux you will agree (even if Cramer didn't note it) that these entrees are way too large for one person. CAKE could easily trim 5% to 10% off of its portions and not change prices. The savings would go 100% to the bottom line.
As far as the other data, the 23.6 forward P/E ratio isn't cheap and the 12-times cash flows isn't dirt cheap. But a revved-up management team could easily fix both of these. Both the hallmark Cheesecake Factory and the Grand Lux are better brands than others and these restaurants are rarely operating without being full, from my own personal experience. So if you make the argument that prices can be hiked and it can chop costs, then it's actually possible and the numbers could be far better than they have been.
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
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MOST NOTEWORTHY: Royal Caribbean, Alkermes and ASML Holdings were today's noteworthy downgrades:.gif){kind=logo}
A fund affiliated with restaurant super-investor Nelson Peltz has acquired a 14% stake in 
It's a bad sign for restaurants: they're handing out coupons in an effort to lure reticent diners, who are nervous about gas prices, the economy and, of course, housing.
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As Jonathan Berr 
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