S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF MICROSOFT
MSFT; $29.24
Microsoft withdraws its takeover offer of Yahoo after Yahoo rejected a raised bid of $33 per share, demanding at least $37 per share. We view this development as positive by demonstrating Microsoft's financial discipline in not overpaying for a proposed deal. While a merger with Yahoo is still possible in the future, we believe Microsoft will seek to acquire other Internet properties and repurchase its own shares more aggressively following a lull in anticipation of the planned merger with Yahoo. /J. Yin
S&P REITERATES HOLD OPINION ON SHARES OF YAHOO INC.
YHOO; $28.67
On Sat., Microsoft withdrew its bid to acquire Yahoo, indicating it was willing to raise its offer to $33/share, from the initial $31, but Yahoo wanted $37 or more. We are surprised Microsoft did not even attempt a proxy battle and/or tender offer, but think concerns about valuation and from stakeholders played a role. Although we now expect Yahoo to quickly pursue new actions to try to generate shareholder value, such as an expanded search advertising pact with Google (GOOG) and/or buyback activity, we expect the shares to be under pressure today. /S. Kessler
S&P REITERATES HOLD OPINION ON SHARES OF COUNTRYWIDE FINANCIAL
CFC; $5.30
Shares are down over 11% this morning and are trading at a 25% discount to the buyout price offered by Bank of America. In a filing with the SEC last week, BofA gave no assurances that it would take over part of Countrywide's debt after the acquisition. Countrywide suffered credit losses of $3.05B in Q1 and has seen the value of its assets deteriorate dramatically since BofA made its offer. While we are concerned by the SEC filing, we believe BofA will complete the buyout of Countrywide, but at a lower price. We are keeping our $6 target price on Countrywide, a 20% discount to the buyout price. /K. Cole, CFA
S&P MAINTAINS HOLD OPINION ON SHARES OF BANK OF AMERICA
BAC; $39.79
Based on rapid deterioration of Countrywide Financial's credit portfolio, we believe BofA will eventually lower its purchase price for Countrywide, valued at roughly $4 billion. Notably, Countrywide's 90 day delinquencies jumped to 4.6% at the end of Q1 vs. 3.0% at the end of Q4. Delinquencies on option arms rose to 9.4% from 5.7%. We are particularly wary of Countrywide's option arm portfolio because we do not believe that it has yet been stress-tested. Indeed, one of our major concerns about BofA is the potential inheritance of Countrywide's option arm portfolio. /S. Plesser
S&P MAINTAINS HOLD OPINION ON SHARES OF MARVEL ENTERTAINMENT
MVL; $30.25
Marvel posts Q1 EPS of $0.58 vs. $0.56, beating our $0.44 estimate. Licensing revenue declined from $120 million to $85 million on a lower contribution from the Spiderman venture, but was still above our estimate. Separately, Marvel released its first self-produced film, Iron Man, this past weekend, and the box office take of $101 million exceeds our expectation. We are raising our '08 EPS forecast to $1.74 from $1.58 to reflect the Iron Man impact and stronger licensing revenue. We are also lifting our target price to $34 from $30, based on updated relative and historical analyses. /E. Kolb
S&P MAINTAINS HOLD OPINION ON SHARES OF SPRINT NEXTEL
S; $7.89
An unconfirmed report in German magazine, Der Spiegal, said that Deutsche Telekom (DT) may bid for Sprint. While combination with T-Mobile might solve some of Sprint's brand image problems and create stronger combined national player, we are cautious, as the two providers operate different technologies and deal could face regulatory hurdles related to foreign ownership and market share. Moreover, Sprint in the past has rebuffed investment offers from foreign players such as SK Telecom. We maintain our 12-month target price of $10, based on 5.8X our 2008 EBITDA forecast. /J. Moorman, CFA