Monday, March 24, 2008

Lehman (NYSE:LEH): Actionable downgrade from OpCo's Meredith Whitney

- Oppenheimer is out downgrading Lehman (NYSE:LEH) to Perform from Outperform based upon valuation in what they believe will be a protracted challenging capital markets environment. Since 1994, LEH's stock has traded as low as 0.6x book and as high as 2.2x book. Firm argues the low and high end of this range are clear outliers and that a 20% premium to book (which is where the stock currently trades) will likely be the stabilized valuation, give or take, until core fundamentals begin to improve, likely in early 2009 or slightly before.

While they do believe LEH will play a key role in the financial recaps set to take place throughout the remainder of the year, the core shift from "originate and sell" to "originate and hold" business simply puts a cap on returns for the industry and will argue for a lower valuation band for the group. After this downgrade, OpCo now has no Outperforms for the brokerage group, only 4 Performs and 3 Underperforms.

Firm's Y2008 and FY2009 EPS estimates remain at $5.00 and $6.40, respectively, slightly below consensus of $5.03 and $6.84.

Notablecalls: While on 1st glance this is just a valuation downgrade, a closer look confirms OpCo's Meredith Whitney is really hitting it out of the park here. She's damn right downgrading Lehman here. Business will never be as good again (at least for several yrs) & LEH stock does not deserve to trade so close to recent highs.

I also see couple of other bearish calls or pieces of news this morning:

- Punk Ziegel analyst Dick Bove says on CNBC he thinks BSC is worth nothing; says if JPM hikes bid to $10 people will sell JPM.

- BofA is out with a call saying Bear's demise suggests structurally lowers ROEs for the I-Banks.

Think I have never called a rating change Actionable. First time for everything. Actionable Trading Call alert. LEH should be trading closer to $40 level here.

1 comment:

GUNNERS said...

Looking good so far. LEH is one of the few financials in the red this morning