From Standard & Poor's Equity ResearchCITIGROUP REITERATES BUY ON LEHMAN BROTHERS
Citgroup analyst Prashant Bhatia says Lehman Brothers' (LEH) capital raising will solve its perception issues and will make Lehman the most deleveraged company among its peers. He estimates the capital raise will dilute the equity of existing shareholders by less than 3%, assuming an 8% return on the capital raised.
Bhatia believes Lehman management made the decision to protect the downside risk that could result from a loss of confidence driven by perception issues. He says the new capital raise should put the perception issues to rest and the focus will now be on the upside potential inherent in the franchise and the compelling valuation.
He notes Lehman stock is trading below book value. He keeps 65 target price.
BEAR STEARNS KEEPS OUTPERFORM ON CITIGROUP
On Mar. 31, Citigroup (C) said it completed reorganization of corporate structure. Bear Stearns analyst David Hilder says the new structure is both creative and pragmatic, and will help improve operational efficiencies and promote earnings growth.
Hilder notes the company achieved pro forma Tier 1 capital ratio of 8.8%, significantly above its 7.5% target. He estimates Citi could absorb assets write-downs of $25 billion on pretax basis and still remain above its target Tier 1 capital ratio.
He sees continued cash earnings generation and non-core asset sales, leading him to believe it will not be necessary for the company to cut its dividend. He thinks the current dividend yield of 6% offers significant long-term capital appreciation potential.
GOLDMAN RAISES TARGET PRICE AND ESTIMATES FOR EBAY
Goldman Sachs analyst James Mitchell says eBay (EBAY) could stabilize, and accelerate gross merchandise value growth through further reductions of insertion fees and more aggressive issuance of discount coupons to buyers.
He believes the shares' valuation may not reflect underlying fundamentals of the company's PayPal business, as investors tend to focus on listings-driven businesses. He thinks PayPal has significant opportunity in global e-Commerce market, and expects the bulk of growth to be driven by off-eBay penetration.
Mitchell raises $1.65 2008 EPS estimate to $1.69, $1.84 for 2009 to $1.88, to reflect recent initiatives, euro appreciation, better-than-expected first quarter 2008 listings growth. He raises $33 6-month target to $35. He keeps buy opinion on the stock.