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Lehman Brothers Dons Brokerage Crown

For the full year, revenue at Lehman is expected to rise 25% to $14.5 billion. On a percentage basis, that's higher than the increase at any other big Wall Street firm. Full-year revenue at Goldman Sachs and Merrill Lynch (MER), for instance, are expected to rise 17%. Pulling up the rear is Bear Stearns with a paltry 7% gain in revenue.

"Lehman has done a much better job growing its non-debt-related business. They've improved the equity-side made mergers and acquisition," says Michael Stead, the manager of River Aire Investment, a hedge fund with no position in the stock. "The results are great. You can see the results in the stock price."

The big surge in Lehman's shares has narrowed the historic valuation gap between it and Goldman Sachs, which is still regarded by many as the premier investment house. On the basis of 2006 estimates, shares of Lehman and Goldman Sachs are both trading at 12 times earnings.

The stocks also are comparable on price-to-book ratio, a valuation metric favored by most Wall Street analysts in assessing brokerage stocks. Lehman shares trade at a price/book multiple of 2.25, compared with the 2.35 multiple Goldman garners.

In jumping into the same league as Goldman Sachs, Lehman also has put a good deal of distance between itself and Bear Stearns -- the Wall Street firm with which it is most often compared. Shares of Bear Stearns trade at a price/earnings ratio of just under 11 on the basis of next year's earnings. On a price-to-book basis, Bear Stearns fares even worse, trading at a lowly multiple of 1.73.

But for all its big gains in 2005, it looks as though investors won't be able to bank on a repeat performance from Lehman in 2006. Analysts are looking for its earnings to be largely unchanged in the coming year. Revenue is expected to rise a scant 4%.

However, Lehman will not be alone.

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