August 15, 2008 / 1:30 PM / 10 years ago

UPDATE 1-RESEARCH ALERT-Fox-Pitt cuts price target on Lehman

(Recasts, adds details)

Aug 15 (Reuters) - Lehman Brothers’ LEH.N price target and earnings estimates were cut by Fox-Pitt Kelton analyst David Trone, who forecast a third-quarter loss at the investment bank, saying hedging gains would not be enough to mitigate write-downs.

Trone, who previously expected a profit for Lehman in the third quarter, cut the price target to $50 from $62, but maintained his “outperform” rating on the stock.

The analyst said the hedging gains, which had mitigated write-downs at Lehman till the first quarter, are expected to cushion the loss a bit in the third quarter.

He expects overall gross write-downs to be $3.6 billion, offset by $800 million in hedging gains, yielding $2.8 billion in net write-downs in the third quarter.

Revenue could be up 3 percent sequentially as expenses fall 8 percent helped by cost cutting, he added.

As a result, Lehman should lose $1.8 billion, or $2.62 a share, as opposed to his earlier estimate of a profit of 36 cents a share, he said.

Trone cut his profit estimate to 61 cents a share from 81 cents for the fourth quarter, and to $3.99 a share from $4.50 for 2009.

Lehman posted its first ever quarterly loss in June after writing off $3.7 billion of losses taken from bets on risky securities.

Shares of Lehman closed at $16.20 Thursday on the New York Stock Exchange. (Reporting by Amiteshwar Singh in Bangalore; Editing by Deepak Kannan)

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