Lehman Upgrade, Investors Skeptical

123jump.com Staff
28 Mar, 2008
New York City

Lehman Brothers stocks was upgraded to buy from hold by an analyst at Citigroup with a target price of $65. The research note suggested that the company has adequate liquidity and the recent Fed action will provide ample support to the stock. Lehman stock traded as high as $81 in June of 2007 and since then has been on a slide. Lehman on March 17, Monday after the deal between JP Morgan and Bear Stearns, came under heavy pressure and touched as low as $20.

[R]9:00AM New York – Lehman upgrade by Citigroup may not alter sentiment in the sector.[/R]

Investors fearful of losses and skeptical of the veracity and accuracy of financial analysts covering financial sector have one more opinion on a battered Lehman Brothers stock to digest. The report from Citigroup analyst suggest that Lehman Brothers stock is extremely attractive and is more than likely to reach his target of $65. Investors hope he is right.

Citigroup lifted Lehman Brothers to ‘buy’ rating from ‘hold’ citing recent earnings and its solid liquidity on the balance sheet. The recent Fed action was also cited as a reason for the support of the stock. Citigroup kept its target price at $65 and forecasted 70% growth in the stock price.

Lehman has been a subject of persistent chatter among brokers and investors after the collapse of Bear Stearns and analysts have questioned adequacy of company’s liquidity. Lehman ((LEH)) stock has fallen more than 20% in the last one week and traded during the day as low as $20 on the Monday March 17, a day after when JP Morgan announced $2 per share bid for Bear Stearns.

Since then Lehman stock has traded between $38 and $47.

Erin Callan, Chief Financial Officer of Lehman in an interview with Business Week magazine said that the investment banks has $375 billion on the balance sheet and had recently approached the Fed Discount window and tapped $2 billion. She also stated that the bank has nearly $38 billion in assets on the balance sheet that are considered of level-three quality.

Lehman on the earnings release on March 18 said as of February 29, 2008, Lehman Brothers'' total stockholders'' equity was $24.8 billion, and total long-term capital (stockholders'' equity and long-term borrowings, excluding any borrowings with remaining maturities of less than twelve months) was $153.2 billion.

Additionally, Lehman reported net income of $489 million, or $0.81 per diluted share for the first quarter ended February 29, 2008, a 57% decline compared to net income of $1.15 billion, or $1.96 per share in the first quarter of fiscal 2007. Fourth quarter fiscal 2007 net income was $886 million, or $1.54 per common share.

In separate news, Bear Stearns Chairman James Cayne sold 5.7 million shares for $10.84 per share, $61.3 million to JP Morgan. The sale was conducted a day after the Bear Stearns’s board agreed to sell investment banker to JP Morgan for $10 a share of $1.2 billion. Since then the stock has traded between $11 and $12. Only two years ago James Cayne and his wife Patricia Cayne stake of 5.7 million was worth nearly $1 billion.