LEH Lehman Brothers Earnings Preview

Monday, March 17, 2008

LEH is expected to report Q1 earnings before the open tomorrow with the conf call following at 10 ET. Current Q1 consensus is for EPS of $0.72 on $3.35 bln in revs. Analysts will be watching this one very closely following the debacle over at rival BSC and most questioning every positive statement the co. makes. The comparison to BSC is apt in the sense that they both have book values far exceeding their current price, are expected to make money this qtr, and have said that they are going to be ok. Whether that comparison extends to enormous hidden problems that result in bankruptcy is anybodies guess, though analysts tend to believe that LEH was more conservative and has more liquidity than BSC. If they avoid a serious problem, they should be a bargain at this price, or if not, they could be bought for $2 a share as well. The expected volatility over the next few weeks is very large. Some clues to listen for are: The size of their level three assets, the size of any writedown, how much liquidity they have (they had $34.9 bln in its liquidity reserve at the end of Nov), and any talk of strategic alternatives. Things to ignore include: book value, any comments about how they expect 2009 to be, any reassurance that they give that liquidity is fine that isn't backed up by cold, hard, numbers. Recent Price Action: LEH hit a high over $85 early in 2007 and made it as low as about $20 today before rallying back above $32.