Key Calls: MSFT Lovefest Despite Rocky Q1

Merrill Lynch (MER): Bernstein say’s MER’s credit rating is “at risk” following Merrill’s sale of $2.55 billion of preferred equity. Rating agencies, says Berstein, don’t allow more than 25% of capital to consist of preferred equity. Bernstein also expects more writedowns.

Virgin Mobile (VM): Bear Stearns upgrades VM citing stable wireless environment and valuation.

Ford (F): Bear recommends taking profits after Fordd’s surprise beat. JP Morgan also downgrades from Overweight to Neutral citing valuation. Merrill downgrades from Neutral to Sell.

Microsoft (MSFT): Bank of America thinks that in-line revenue due to weak Windows will depress shares in the short-term. But “prospects remain strong” and FY09 estimates will move higher. Deutsche Bank agrees and says risk/reward is attractive given growth profile and earnings leverage (Buy). Jefferies thinks Vista issues were caused by macro weakness and piracy. Thinks FY09 guidance is strong and maintains Buy. Stanford likes MSFT’s “diverse businesses” and notes that its valuation is lower than its peer group.

Motoroloa (MOT): Gabelli doesn’t see MOT recovering share and thinks its time to accelerate the spin-off process. No visibility in MOT’s strategy for reducing costs and regaining competitive structure.

CNet (CNET) & Yahoo! (YHOO): Jefferies thinks CNet’s rough Q1 indicates that paid leads and display businesses are struggling. Partnership with YHOO will help expand reach by improving yield starting in 2H08. (BIDU): Citigroup upgrades BIDU from Hold to Buy following Q1 results. Target to $414 from $350.


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