Bayer (BAYRY) (PAAS) (MMI) (VRTX) (ODP) (CHDN) Upgraded

Bayer AG (OTC: BAYRY), Pan American Silver Corp (NASDAQ: PAAS), Motorola Mobility (NYSE: MMI), Vertex Pharmaceuticals (NASDAQ: VRTX), Office Depot, Inc. (NYSE: ODP) and Churchill Downs, Inc. (NASDAQ: CHDN) upgraded by analysts.

Motorola Mobility (MMI) was upgraded by JPMorgan Chase & Co. (NYSE:JPM) from an “Underweight” rating to a “Neutral” rating.

Vertex Pharmaceuticals (VRTX) was upgraded by William Blair from a “Market Perform” rating to an “Outperform” rating.

Pan American Silver Corp. (PAAS) was upgraded by Canaccord Genuity from a “Hold” rating to a “Buy” rating.

Bayer AG (BAYRY) was upgraded by Nomura from a “Neutral” rating to a “Buy” rating.

Office Depot, Inc. (ODP) was upgraded by UBS AG from a “Sell” rating to a “Neutral” rating. They have a price target of $3.00 on the company.

Churchill Downs, Inc. (CHDN) was upgraded by Hilliard Lyons from a “Neutral” rating to a “Buy” rating. They have a price target of $52.00 on the company.

Range Resources (RRC) (NSC) (ODP) (BWLD) (ERTS) (ESV) (DLTR) Upgraded

Range Resources (NYSE: RRC), Norfolk Southern Corp. (NYSE: NSC), Office Depot, Inc. (NYSE: ODP), Buffalo Wild Wings (NASDAQ: BWLD), Electronic Arts Inc (NASDAQ: ERTS), ENSCO PLC (NYSE: ESV) and Dollar Tree Inc (NASDAQ: DLTR) upgraded by analysts.

Range Resources (RRC) was upgraded by Citigroup (NYSE:C) from a “Sell” rating to a “Hold” rating. They have a price target of $65.00 on the company.

Norfolk Southern Corp. (NSC) was upgraded by Wells Fargo & Co. (NYSE:WFC) from a “Market Perform” rating to an “Outperform” rating.

Office Depot, Inc. (ODP) was upgraded by Nomura from a “Reduce” rating to a “Neutral” rating.

Buffalo Wild Wings (BWLD) was upgraded by Raymond James (NYSE:RJF) to an “Outperform” rating.

Electronic Arts Inc (ERTS) was upgraded by Brean Murray from a “Hold” rating to a “Buy” rating. They have a price target of $29.00 on the company.

ENSCO PLC (ESV) was upgraded by Morgan Stanley (NYSE:MS) from an “Equal Weight” rating to an “Overweight” rating. They have a price target of $80.00 on the company.

Dollar Tree Inc. (DLTR) was upgraded by Piper Jaffray (NYSE:PJC) from a “Neutral” rating to an “Overweight” rating. They have a price target of $87.00 on the company.

Microsoft (MSFT) (BKS) (CUK) (GIS) (ODP) Ratings Reiterated

Barnes & Noble Inc (NYSE: BKS), Carnival (NYSE: CUK), General Mills (NYSE: GIS), Microsoft Corp. (NASDAQ: MSFT) and Office Depot, Inc. (NYSE: ODP) had ratings reiterated on them.

Duncan Williams maintains a "Buy" rating on Barnes & Noble Inc (BKS). They have a price target of $61.50 on the company.

Citigroup (NYSE:C) reiterated a "Buy" rating on Carnival (CUK).

Deutsche Bank (NYSE:DB) reiterated a "Buy" rating on General Mills (GIS).

Morgan Stanley (NYSE:MS) maintains an "Overweight" rating on Microsoft (MSFT).

Goldman Sachs (NYSE:GS) reiterated a "Neutral" rating on Office Depot, Inc. (ODP).

Barnes & Noble closed Thursday at $17.38, falling $0.15, or 0.86 percent. Carnival closed at $35.97, down $0.71, or 1.94 percent. General Mills ended the day at $37.36, gaining $0.48, or 1.30 percent. Microsoft closed at $26.47, dropping $0.16, or 0.60 percent. Office Depot closed at $3.75, declining $0.21, or 5.30 percent.

Advent (ADVS) (BRCM) (CMS) (HA) (ODP) Ratings Reiterated

Advent Software Inc (NASDAQ: ADVS), Broadcom Corp (NASDAQ: BRCM), CMS Energy (NYSE: CMS), Hawaiian Holdings, Inc. (NYSE: HA) and Office Depot, Inc. (NYSE: ODP) had their ratings reiterated on them by analysts.

JPMorgan Chase & Co. (NYSE:JPM) reiterated an “Underweight” rating on Advent Software Inc (ADVS).

Oppenheimer reiterated an “Outperform” rating on Broadcom Corp (BRCM). They have a price target of $55 on the stock. Broadcom got crushed in Wednesday trading after weak guidance. They closed at $35.45, plunging $4.96, or 12.27 percent.

Deutsche Bank (NYSE:DB) maintained a “Buy” rating on CMS Energy (CMS).

DA Davidson reiterated a “Hold” rating on Hawaiian Holdings, Inc. (HA).

Piper Jaffray reiterated a “Neutral” rating on Office Depot, Inc. (ODP). They have a price target of $5 on the company.

Office Depot (NYSE: ODP) Investigated by Class Action Law Firm

Office Depot (NYSE:ODP) had barely revealed the news it would have to restate a $33 million profit as a $46 million loss when the class action law firm Zeldes & Haeggquist LLP, based in San Diego, launched an investigation into the company.

According to the law firm, they are investigating into possible breaches of fiduciary duty and other violations of law by specific officers and directors at office supply retailer.

What is being determined is whether or not officers and directors at Office Depot resulted in the company having to issue materially false and misleading statements regarding financial results and whether they breached their fiduciary duties – specifically in reference to tax loss carry-backs that were rejected by the IRS.

Boasts of the law firm on its website is it has been involved in class action action against Apple (NASDAQ:AAPL) and Sony Electronics (NYSE:SNE), among others.

Office Depot closed Friday at $4.21, falling $0.42, or 9.07 percent.

Office Depot (ODP) Punished on Tax-Credit Denial

The denial by the IRS to allow Office Depot Inc. (NYSE:ODP) to use specific tax credits for 2010 and 2011 has the share price of the stock plunging by over 11 percent. At one point the share price had fallen by just under 15 percent.

As a result, free cash flow in the quarter just ended was negative by $100 million, according to Chief Financial Officer Mike Newman.

According to the IRS, the company didn't qualify for tax credits under the American Recovery and Reinvestment Act of 2009 because some tax rules superseded those Office Depot was using to determine its eligibility. Another reason the tax system needs to be simplified and taxes lowered all the way around.

The retailer had believed they qualified for $80 million in tax credits for 2010 and $63 million for 2011.

Office Depot said they'll still be able to end up with positive free cash flow in 2011 because of a special dividend they will extract from its division in Mexico.

The company was trading at $4.11, falling $0.52, or 11.23 percent, as of 2:01 PM EDT.

Retailers (WMT) (JCP) (M) (HD) (TGT) (LOW) (ODP) All Down on Inflation Expectations

The CEO of Wal-Mart (NYSE:WMT), Bill Simon, said in an interview with USA Today that he sees inflation having an impact on price in the latter part of 2011, causing retailers like JC Penney (NYSE:JCP), Home Depot (NYSE:HD), Target (NYSE:TGT), Lowe's (NYSE:LOW), Macy's (NYSE:M) and Office Depot (NYSE:ODP) to all fall.

Food companies have already had to begin to endure the higher prices, as input costs rise as food demand surges around the world. In that case the companies have responded more by lowering the amount of product in some packaging, rather than raising prices or suffering the loss of margins and earnings.

Of course general retailers, for the most part, don't have that luxury, and so will be force to raise prices or allow earnings to underperform, something most will most likely not be willing to allow to happen.

Bottom line is it appears in an environment of higher fuel costs retailers will have to boost prices, making it a difficult time for the overall sector going forward, in an a price sensitive situation.

Staples To Sell (RIMM) (MMI) (DELL) Tablets

As a wave of competitors to Apple's (NASDAQ:AAPL) iPad 2 hit the market, Staples (NASDAQ:SPLS) announced they're going to offer a wide range of new tablets, including those from Research in Motion (NASDAQ:RIMM), Dell (NASDAQ:DELL), Samsung, Acer, Toshiba and Motorola Mobility (NYSE:MMI).

The office supply and electronic retailer said they're now taking pre-orders for a variety of tablets now available.

Staples said they have a goal of becoming a major player in the tablet market as the sector grows.

Major retailing competitors of the company like Wal-Mart (NYSE:WMT), Best Buy (NYSE:BBY), Office Depot (NYSE:ODP) and Radio Shack (NYSE:RSH) have already either committed to or are offering tablets too.

United Stationers (Nasdaq:USTR), Office Depot (NYSE:ODP), Home Depot (NYSE:HD) Top Retail Picks of FBR

FBR liked what they saw in general for hardline retailers in December, and released a report on a number of companies, of which their favorites are United Stationers (Nasdaq:USTR), Office Depot (NYSE:ODP) and Home Depot (NYSE:HD), all which they have an "Outperform" on.

FBR says, "Retail sales as reported by the census for hardlines (these companies do not report monthly comp store sales), were generally good for the categories we track in December, with all categories but one showing a sequential improvement in YOY trends. Most notable was Home Improvement (building materials, garden equipment and supplies dealers, NAICS 444) which was up +13.1% YOY. This was an acceleration from the +11.2% reported in October, and an improvement on a 3-year stacked basis. Consumer Electronics Sales (NAICS 443) improved to +1.8% YOY for the month of December, up from -0.4% in November. Based on the recent results and comments out of BBY & HGG (both included the month of December), as well as HD, the strength within this category was likely driven by appliances. Aftermarket Auto Parts were up +9.6% YOY, and this was up from +9.3% in November. So, the strength in after-market auto parts continues its pace. Home Furnishings were flat sequentially, at +1.4% YOY for the month of December. Strength in this category continues to be on the furniture side. Office Supplies (NAICS 4532) sales are reported on a one month lag, and these were up +7.7% in the month of November, up from -1.7% in October. While this category showed notable strength, it contradicts our channel checks, which have shown a slight deceleration in the month of November.

Those getting a "Market Perform" from FBR included Lowe's (NYSE:LOW), RadioShack (NYSE:RSH), Best Buy (NYSE:BBY), hhgregg (NYSE:HGG), OfficeMax (NYSE:OMX), AutoZone (NYSE:AZO), Advanced Auto (NYSE:AAP), and O'reilly (Nasdaq:ORLY).

Companies with an "Underperform" rating were Staples (Nasdaq:SPLS), Genuine Parts (NYSE:GPC), Tractor Supply (Nasdaq:TSCO), and Bed Bath & Beyond (Nasdaq:BBBY).

Lowe’s (NYSE:LOW), Staples (Nasdaq:SPLS), OfficeMax (NYSE:OMX), Office Depot (NYSE:ODP), Should See Little Impact from Australian Floods

Commenting on their hardline retail universe with exposure to Australia, FBR Capital said they don't see much impact on Lowe’s (NYSE:LOW), Staples (Nasdaq:SPLS), OfficeMax (NYSE:OMX) or Office Depot (NYSE:ODP) at this time.

FBR noted, "We have received questions and there have been reports of a potential negative impact to the Australian GDP from floods in Queensland Australia. Within our hardline retail universe, four companies have what looks to be relatively insignificant exposure in Australia. Staples (Underperform) & OfficeMax (Market Perform) have the most exposure with 4% of total company sales in Australia. Office Depot’s (Outperform) exposure is extremely limited, via license/alliance. Lowe’s (Market Perform) is in the infancy stages of a joint venture in Australia which was created 8/24/09 with the first stores to open in FY2011, and therefore has no exposure. The flooding is centered around eastern Queensland, so not all of Australia is exposed. There have been some product delays in these areas, but they haven’t prolonged, based on our discussions with the companies. Australia is a higher margin market for Staples & OfficeMax. For Staples, as an example, Australia garners nearly double the company's international EBIT margins at 6% vs. total international EBIT margins of 3.2%. All in, the companies may have to speak to this during their quarterly earnings calls, related to their international divisions, however the impact is considered insignificant and isolated at this stage. We have no changes to estimates."

Lowe's closed Wednesday at $24.44, up $0.05, or 0.21 percent. Staples closed at $23.49, gaining $0.61, or 2.67 percent. OfficeMax ended the trading session at $17.91, up $0.70, or 4.07 percent. Office Depot closed trading at $5.87, the same as the session the day before.

Questions Linger Over Office Depot's (NYSE:ODP) Strategic Direction

FBR Capital said a number of questions have arisen concerning the strategic direction of Office Depot (NYSE:ODP), especially after the the 8-K issued on December 21.

FBR addressed the issues saying, "There have been reports and questions regarding the potential strategic direction of Office Depot. Many of these questions were accelerated on the heels of the 8-K issued by Office Depot on December 21. We have received requests for our sum-of-the-parts math surrounding Office Depot's international segment (29% of sales), as well as for its JV in Mexico (miscellaneous income on the face of the P&L). Both of these segments are considered monetizable, if needed, as we have stated in the past. Mexico in fact received a $430M pretax bid in July 2008 ($325M after-tax) for Office Depot's portion. Our Outperform rating on ODP is based on the risk/reward investment merit of a turnaround, the prospects of a new CEO, and a more dynamic, more involved board of directors. Three of the 13-member board are from private equity investment firm BC Partners, with a 20% stake in the company (via a convertible bond). We have also said in the past that this provides a safety net, of sorts, for Office Depot to attract a good outside CEO. This provides a decent hybrid investment case for the stock: fundamental and strategic."

FBR Capital maintains an "Outperform" rating on Office Depot, which closed Tuesday at $5.81, down $0.02, or 0.34 percent. FBR has a price target of $7 on them.

Outlook for Home Depot (NYSE:HD), Lowe's (NYSE:LOW)

FBR says their outlook for home improvement in 2011 is "constructive," but volatile housing metrics keep their from recommending Home Depot (NYSE:HD) and Lowe's (NYSE:LOW) outright.

FBR said, "We are constructive on home improvement, with the group building off of trough trends set in 2009. Choppy housing metrics, such as Case-Shiller, mean that investors can stay selective; and this keeps us from recommending outright both stocks. We expect HD to continue to exhibit better business and share price momentum. Initiatives, such as "First Phone" (mobile handhelds), bode well for the continuation of better relative same-store sales trends for HD, in our view. The chain with higher comp momentum in the past has been afforded a premium P/E valuation. HD's current 2% premium NTM P/E, versus LOW's, looks too low, given its premium same-store sales trends, higher inventory turnover, and other superior operating metrics, such as sales and EBIT per square foot. In the short run, we anticipate that last week's winter storm activity in the Northeast will have a neutral impact on group sales trends—worst case, while a modest net benefit is possible, given storm preparation sales. We reiterate our Outperform rating on Home Depot and our Market Perform rating on Lowe's.

"EPS estimates. For 2010, for HD, we estimate EPS of $1.98, versus the Street estimate of $1.98 and guidance of $1.97 GAAP ($1.99 ex. charges). For 2011, we estimate EPS of $2.22; and this approximates the Street consensus of $2.24. This also compares with HD's guidance (including share repurchases) of 11% to 13% EPS growth over $1.97 GAAP for 2010 (implicit $2.13 to $2.23 for 2011E). For 2012, our EPS estimate for HD is $2.47 (up 11% YOY). For LOW, for 2010, we estimate EPS of $1.41, versus the Street at $1.41. We estimate EPS of $1.63 for 2011 (including an extra week's benefit in 2011), versus the Street consensus estimate of $1.64. LOW has not yet provided tangible EPS guidance for 2011E. For 2012, we estimate EPS for LOW of $1.77, which reflects an 11% YOY EPS growth rate, adjusted for the extra week."

They also gave their ratings for hardline retail:

"Outperform-rated stocks: Home Depot, Office Depot (NYSE:ODP), United Stationers (Nasdaq:USTR), and Radio Shack (NYSE:RSH); Underperform-rated stocks: Genuine Parts Company (NYSE:GPC), Tractor Supply (Nasdaq:TSCO), Staples (Nasdaq:SPLS), and Bed Bath & Beyond (Nasdaq:BBBY); Market Perform–rated stocks: Lowe's, Office Max (NYSE:OMX), Best Buy (NYSE:BBY), hhgregg (NYSE:HGG), O’Reilly Automotive (Nasdaq:ORLY), Auto Zone (NYSE:AZO), and Advance Auto Parts (NYSE:AAP)."

Home Depot was trading at $35.44, up $0.38, or 1.10 percent, as of 11:21 AM EST. Lowe's was trading at $25.30, up $0.22, or 0.88 percent.

Office Depot (NYSE:ODP) Alters 'Change of Control' Provisions in Contracts of 7 Executives

Even though Office Depot (NYSE:ODP) says the alteration in the change of control provisions within the contracts of 7 executives came about from simple expirations and was the normal course of action, the market has assumed there's more to it.

FBR said, "ODP issued an 8-K 12/21 after the close that altered the change of control provisions within the contracts of 7 executives. The company indicated that the former provisions within these executives' had expired as of 10/10 and the changes were normal course. The equity market speculated that the company could be entertaining something more strategic, as was evident in media reports and yesterday's 9.1% appreciation in the share price versus the .3% rise in the S&P 500. Our rating on ODP is based on the risk/reward investment merit of a turnaround, the prospects of a new CEO and a more dynamic, more involved BOD (Board of Directors). 3 of the 13 member BOD are from private equity investment firm, BC Partners, with a new 20% stake in the company (via a convertible bond).

"Mexico alone has received in the past a $325M after-tax bid. International (x Mexico) will generate by our math $143M in EBITDA NTM (assuming a 10% allocation of corporate overhead and corporate D&A). SPLS paid 10x for Corporate Express (CXP) in 7/08. So, using this valuation, tax considerations vs. our estimated net book value for international (x Mexico) to the international segment, we derive a $1.3B value potential for the international segment and a $325M net value potential for Mexico ($1.625B in total). This does not attempt to take into account the complexities of any potential tax savings form $1.1B in foreign tax loss carryforwards (NOL's) and $901M in U.S. State NOL's. ODP's total company enterprise value is currently $1.96B."

FBR Capital reiterates an "Outperform" on Office Depot, which closed at $5.45, up $0.17, or 3.22 percent as of 12:18 PM EST.

Office Depot (NYSE:ODP) Sells Japanese Delivery Business

Office Depot (NYSE:ODP) has reportedly sold its Japanese Delivery business, as most expected to happen.

FBR commented, "Media reports indicate that Office Depot (ODP/Outperform) has sold its Japan Delivery business for an undisclosed sum. ODP exited its Japan retail business in 2009, while management hinted to the likely sale of its Japan Delivery segment last quarter, reported 10/27/10. Today's reports are as expected. It is a subtle positive that ODP has been monetizing certain assets, namely its Israel segment, discussed last quarter (for $47M) and this segment today (which we expect garnered an immaterial amount of proceeds - less than Israel).

"The International segment alone had a book total asset value (no goodwill) of $1.493B as of 2009 (which includes ODP's 50% of the net assets of Mexico, or 50% of $390M); this compares with the current market capitalization of the stock price of $1.3B, while we point out that enterprise valuations within the group normally trade at levels that are north of book value. We reiterate our Outperform rating on ODP, with a high risk, high reward investment thesis. The stock trades at 0.16x EV/sales, compared with the group average of 0.86x."

FBR maintains their "Outperform" rating on Office Depot, which was trading at $4.78, up $0.07, or 1.49 percent, as of 12:14 PM EST.

Netflix (NASDAQ:NFLX) Replaces Office Depot (NYSE:OD) on S&P 500

Several changes were made to the S&P 500 Thursday, with one of the more notable ones being the addition of Netflix (NASDAQ:NFLX), which will be replacing Office Depot (NYSE:OD) on the index.

Other changes made include the addition of Cablevision Systems Corp. (NYSE:CVC), which is replacing King Pharmaceuticals Inc. (NYSE:KG) because of being acquired by Pfizer (NYSE:PFE).

Also being dropped from the S&P is Eastman Kodak (NYSE:EK) and the New York Times (NYSE:NYT), who will be replaced by Newfield Exploration (NYSE:NFX) and F5 Networks (NASDAQ:FFIV).

Stocks removed from the S&P 500 will be lowered to the mid-cap 400 index.

Also noted in the S&P report was changes to the SmallCap 600, where Coldwater Creek Inc. (NASD:CWTR), Corinthian Colleges Inc. (NASD:COCO) and Wilmington Trust Corp. (NYSE:WL) will be replaced by East West Bancorp Inc. (NASD: EWBC), SM Energy Co. (NYSE:SM) and Concur Technologies Inc.

Those removed from the SmallCap 600 will be placed in the S&P MidCap 400.

Office Depot (NYSE:ODP) Faces Short-term Risk, 2011 a Year of Transition

In the short term things will remain challenging for Office Depot (NYSE:ODP), which faces loss of some government business and the transition to a new CEO.

FBR commented, "Meetings with the CFO yesterday (Wednesday) supported the case that the company is on an upward, yet nonlinear, trajectory. Upside centers around new faces on the BOD (more to come, in our view) and on the prospects of a new CEO. Short-term risk to earnings into 1H11E is high, in our view, because of the likely dislocation regarding known government business attrition: the U.S. Communities contract (we estimate it retains 70%), as well as other business, such as the State of California ($20M) and some of the State of Florida business (a portion of the $30M–$40M book of business). This sets 2011E up as a year of transition, under a new CEO, when someone is appointed. We believe that the shorter-term risks are largely in the stock here at 0.15x EV/sales. Nonetheless, short-term investors should take note; we expect further clarity about the potential dislocation over the next two to three quarters. On the positive side, retail same-store sales trends, the company’s "direct" business, and international segments have been improving."

Office Depot closed Thursday at $4.68, gaining $0.17, or 3.17 percent. FBR maintains an "Outperform" on the company and a price target of $7.