Tuesday, April 01, 2008

Lehman (NYSE:LEH): Shorts may feel a slight sting...

Couple of good comments on Lehman (NYSE:LEH) following yesterday's capital raise:

- Citigroup estimates that the capital raise will reduce gross leverage by 3 to 4 times and net leverage by almost 2 times (down to as low as 13.5x), resulting in the lowest net leverage ratio among peers. Using a conservative 8% return on the capital raised, they estimate that EPS dilution will be less than 3%.

Lehman's capital raise is efficient, as it has a conversion price in the $50 range (30-35% above current share price). Furthermore, compared to the 4 other capital raises in our coverage universe, Lehman's raise-up is unique in that it was not driven by the need to replenish capital as a result of large writedowns. Therefore, Lehman can be more opportunistic in putting its new capital to work in the near term.

They continue to see up to 70% upside in LEH shares and any potential concern around the
capital and liquidity position of the franchise should be put to rest.

- Deutsche Bank the new $3B of capital, mostly fom a few large U.S. investors, will likely be raised (in firm's view) within several hours, showing market support for LEH. They expect a conversion price premium of around 30%-35% to the stock (around $50). Firm notes they don't like the idea of earnings dilution by 1/10th forever, but the stock, their our opinion, has been trading in the past week on fears related to liquidity/capital more than EPS and this new issue should help alleviate these concerns. Reits Buy.

Notablecalls: I suspect the shorts in LEH will feel some heat in the n-t. Around a week ago I called Meredith Whitney's (OpCo) downgrade Actionable. The stock was trading close to the $50 level then. Now, at $37 I think the stock's a buy as I feel it has $2-$3 pts of upside in the n-t. Liquidity are put to bed, for now. Shorts will need to come up with more creative stuff.

1 comment:

cramermutebutton said...

Good Call, both ways