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First Niagara: Financial Winner

Stocks in this article: FNFG I:BKX

NEW YORK ( TheStreet) -- First Niagara Financial Group (FNFG) was the winner among the largest U.S. financial names on Tuesday, with shares rising over 2% to close at $7.73.

The broad indexes all moved up after the U.S. Commerce Department reported that new orders for manufactured goods in the U.S. increased by $3.3 billion, or 0.7%, to $469.0 billion during May, following a decline of 0.7% in April. Excluding transportation, new orders increased 0.4% during May.

New orders for transportation equipment increased by $1.7 billion, or 2.7%, in May, to $63.1 billion.

The KBW Bank Index (I:BKX) rose slightly to close at 46.24, with all but three of the 24 index components rising during the abbreviated trading session.

First Niagara's shares have now declined 9% year-to-date, after following a 35% during 2011.

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Based on an eight-cent quarterly payout, the shares have a dividend yield of 4.14%.

The shares trade just below their reported March 31 tangible book value of $7.86, and for nine times the consensus 2013 EPS estimate of 84 cents. The consensus 2012 EPS estimate is 76 cents.

The company last Wednesday announced that it had "taken steps to reposition its securities portfolio through the sale of $3.1 billion of mortgage-backed securities (MBS), the proceeds of which were used to repay a comparable amount of short-term debt." First Niagara also said that there were no prepayment penalties on the debt repayments, and that the company would "recognize a $16 million pre-tax gain from the sale of securities in the second quarter of 2012."

Analysts expect First Niagara to report second-quarter operating earnings of 18 cents a share, compared to operating earnings of 19 cents a share in the first quarter, and 24 cents in the second quarter of 2011.

Jefferies analyst Casey Haire on Thursday said Haire on Thursday reiterated his "Buy" rating for First Niagara, while lowering his 12-month price target for the shares by two dollars to $9.50, lowering his second-quarter EPS estimate by three cents to 18 cents. The analyst also reduced his 2012 EPS estimate to 76 cents from 90 cents and his 2013 estimate to 85 cents from $1.03.

Looking ahead over the long term, the analyst said that the "restructuring gives up some earnings power, but also reduces premium amortization risk and provides much-needed clarity to earnings stream, which should win the stock back some multiple." The added "clarity/predictability of the EPS forecast could be the catalyst for long-awaited multiple expansion. Applying a discounted P/E multiple (11x vs. 12x peer avg.) and factoring in a 4% dividend yield, puts upside at over 20% from here," according to Haire.

Interested in more on First Niagara Financial Group? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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