Lehman Brothers (LEH) Boosted By Merrill Lynch Upgrade

UPDATE: Shares of Lehman Brothers Holdings Inc. (NYSE: LEH) are 7% higher in mid-day action, getting a boost after an upgrade to Buy at Merrill Lynch.

Merrill raised its rating on the embattled investment bank from Underperform to Buy and maintained their $37 price target. Merrill said they believe the Lehman share correction is overdone. They said, "LEH shares have meaningfully undershot Fair Value in the last few days on speculation and concerns that are not justified, in our opinion, given access to the FED primary dealer facility and ample liquidity." They also said concerns of a 'Bear-like' (referring to Bear Stearns) event at Lehman are unfounded, as Lehman is not subject to the same funding risk.

Merrill said a capital raise at Lehman is likely, but already priced into the stock. They said the raise will almost certainly be common stock. They said a $2 billion raise would be about 10% dilutive, but the price has already corrected 17% in the last few days.

Merrill cut Q2 EPS estimates on Lehman to a loss of $0.74 per share from a profit $0.06, on expectations of further asset marks, hedge ineffectiveness and market weakness in May.

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