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First Niagara: Stock Upgrade Winner

Based on a quarterly payout of 8 cents, the shares have a dividend yield of 3.60%.

First Niagara on March 19 announced the abrupt resignation of CEO John Koelmel, who had led the company through an aggressive expansion over the past several years through acquisitions and branch purchases. The company's total assets increased to $36.8 billion as of Dec. 31 from $8.1 billion five years earlier; its branch count grew to 431 at the end of last year from 114 at the end of 2008.

The problem for investors is that First Niagara missed out on the banking industry's stock recovery last year, as the company worked through its deal to purchase branches from HSBC (HBC). Following the consolidation of some of the acquired branches, First Niagara netted 103 new branches during 2012 from the HSBC deal.

Koelmel's temporary replacement as First Niagara's CEO is Gary Crosby, the company's chief operating office.

KBW analyst Damon DelMonte on Monday upgraded First Niagara to an "outperform" rating from "market perform," while raising his price target for the shares to $10.50 from $9.00.

In a note to clients, DelMonte said the search for a new CEO was a "catalyst" and that First Niagara's "valuation is compelling," since the shares were trading for "11.4x our 2013 estimate, 10.5x our 2014 estimate and 155% of tangible book value as compared to our regional peer group that trades at 13.0x, 12.7x and 153%, respectively."

The analyst estimates First Niagara will earn 76 cents a share this year, with EPS rising to 83 cents in 2014.

"While one can argue whether or not it's better to go outside the organization or promote from within, in our view, whomever is selected as the next CEO will come in with a sense of urgency to expedite the bank's earning potential and truly realize the fruits of the last four years' worth of labor," DelMonte wrote. He added that "FNFG can progress toward an earnings range of $1.00 per share over the next few years if it can leverage the opportunities of balance sheet rotation and expense reduction."

Meanwhile, investors can enjoy the dividend.

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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