Analyst: Continued credit weakness to weigh on Lehman

Lehman shares rose 51 cents, or 1.1 percent, to $46.31 after earlier falling as low as $43.81. Shares have traded between $20.25 and $82.05 during the past year.

"Although the worst of the credit crises may be behind and the rate of decline may be slowing, times may be tough for the economy, industry and the company," Deutsche Bank analyst Mike Mayo wrote in a research note.

Continued weakness in the credit markets will outweigh benefits from Lehman's strength in risk management, Mayo wrote in the note.

Pressure on consumers and problems in the real estate and mortgage markets are likely to weigh on the economy in the coming quarters, which could slow down business for Lehman, Mayo said.

The investment bank must also continue to reduce its risk in order to maintain a strong liquidity position, while recovery in the broader financial services sector is expected to take more of a "U" shape than a "V" shape, Mayo wrote in the note.

Though write-downs in the financial markets are expected to dwindle, Mayo estimates Lehman will have to take an additional $2.3 billion during its fiscal second quarter. Lehman has already reduced the value of its assets -many of which are tied to deterioration in the mortgage markets -by about $4 billion net of hedges since the middle of 2007.

All of those factors indicate that Lehman will likely face slow earnings growth in the coming quarters, Mayo said.

Mayo expects Lehman Brothers to earn 43 cents per share during its second fiscal quarter, which ends May 31. Analysts polled by Thomson Financial, on average, estimate Lehman will earn $1.02 per share during the quarter.

Mayo rates Lehman a "Buy" and has a price target of $52 for the stock.