The business stories that matter, by Fortune's Colin Barr
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March 28, 2008, 7:02 am

Lehman looks for a reversal

Lehman Brothers (LEH) could bounce back Friday on the heels of an upgrade by Citi. Shares of the New York-based brokerage firm plunged 9% Thursday amid rumors that Lehman could, like Bear Stearns (BSC), face a renewed liquidity squeeze as investors flee risky assets. Lehman brushed the speculation off as “unfounded,” and on Friday Citi analyst Prashant Bhatia agreed, saying the firm has “ample liquidity” that will see it through any market downdrafts. He upgraded the stock to buy from hold, citing its attractive valuation and Lehman’s strong performance in the recently reported first quarter.

Indeed, Lehman shares have risen more than 90% from their March 17 panic low in the wake of Bear Stearns’ fire sale to JPMorgan as investors found relief in its stronger-than-expected first-quarter performance. Still, not everyone was wowed by the firm’s first-quarter numbers. Jesse Eisinger wrote last week in Portfolio that Lehman’s first-quarter balance sheet was festooned with red flags such as increasing leverage that could point to more problems ahead. While Bhatia predicts that “reality will trump fear,” for now it’s not absolutely clear how upbeat Lehman’s reality is.

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Colin Barr covers business and finance for Fortune.com. Previously he was an editor at TheStreet.com and author of the weekly Five Dumbest Things on Wall Street column, and an editor at Dow Jones Newswires.
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