Lehman’s Earnings

Tired of being one-upped by Goldman (GS), Lehman Brothers (LEH) is reporting its earnings Monday before the bell. Here’s a preview:

OVERVIEW: The New York-based securities firm has spent the past few years expanding its reach globally, and has since captured a larger share of merger and acquisitions advisory deals. Like others in the industry, Lehman has also seen record profits during the past 12 months _ leaning on a stronger performance of its equity capital markets business in both the U.S. and abroad, and has made inroads in the prime brokerage business.
BY THE NUMBERS: Lehman reported a 25 percent rise in profits during the first quarter, which set a record for quarterly results. The firm is expected to have an equally strong performance this time around.
Wall Street projects a profit of $1.60 per share on $4.19 billion revenue, according to analysts polled by Thomson Financial.
ANALYST TAKE: “We generally expect second quarter broker results to be good,” said Prudential Securities analyst Michael Mayo. “There has been little to no decline in deal activity. International revenues should continue to grow. Volatility has probably helped certain trading activities.”
Lehman isn’t the only broker to report during the week. Also on tap are Goldman Sachs Group Inc. and Bear Stearns Cos.
WHAT’S AHEAD: Analysts will be looking to see how Lehman will continue to expand its M&A business, which has helped fuel all of its rivals on Wall Street to historic results in recent quarters. Moody’s Investors Service on Thursday raised its outlook for Lehman’s long-term debt, citing strides the firm has made to expand that business in the past 18 months.
“Specifically, through a disciplined build-out in select product areas and geographies, Lehman has made steady share gains in primary equities, global advisory, and investment banking, and has been a lead adviser on an increasing number of marquee M&A transactions,” said Moody’s analyst Blaine Frantz in a report.
For 2006, Chief Financial Officer Dave Goldfarb said Lehman will focus on increasing its mortgage business in Asia as well as better serving hedge fund clients and expanding its nascent global energy trading arm. The company will also introduce new private equity funds and increase its small business loans globally.
STOCK PERFORMANCE: Lehman shares closed the quarter at $66.61 on the New York Stock Exchange, down 9 percent for the quarter. The stock — which has traded in a 52-week range of $46.21 to $78.84 — closed Friday at $65.61, remains up about 2.4 percent for the year, after falling from its high hit in April.

Here’s how the Big 5 have done since October 2002:
Big 5.bmp
Not bad. One of the reasons why brokerage firms have been so profitable: Outsourcing.
By looking at the chart, you can see why there was a shareholder revolt at Morgan (MS), aka the blue line. Lehman has definitely been the top-performer, even though its stock is off about 16%.

Posted by on June 12th, 2006 at 6:22 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.