Updated with market close information.



) -- Jefferies analyst Casey Haire on Thursday initiated his firm's coverage of

First Niagara Financial Group


with a buy rating, calling the Buffalo, N.Y., lender "one of the cheapest yield plays among bank stocks."

First Niagara's shares closed at $8.72 on Thursday, up over 3% for the session but down 34% year-to-date. Based on a quarterly payout of eight cents, the shares have a dividend yield of 3.67%.

The company was included among


10 New York Bank Stocks With Most Upside for 2012

, based on consensus 12-month price targets

First Niagara Financial Group CEO John R. Koelmel

First Niagara on Dec. 7

cut the dividend from 16 cents

, while also raising $450 million in common equity through a public offering and another $350 through a preferred offering, which featured a high coupon of 8.625%, to partially finance its coming purchase of 195 branches from




The HSBC branch deal is expected to close during the second quarter of 2012, after which the company will sell 40 branches to alleviate Justice Department concerns over First Niagara's market concentration. The company plans to sell roughly 60 more branches, in markets where the acquired branches will overlap its current office locations.

Haire said that "while the 30% drop in capital ratios/tangible book value from HSBC deal is disappointing and limits capital return, it also keeps the company out of the M&A marketplace, which has been the biggest weight on the stock."

The analyst estimates that First Niagara will earn a dollar a share during 2012, for a forward price-to-earnings ratio of 8.5, which is a cheap P/E for a bank with "an unmatched pro forma tangible

return on equity profile in 2012," which Haire estimates will be roughly 19%. Haire added that "there is no bank within our smid-cap coverage universe that comes close to FNFG's high-teens tangible ROE profile."

Jefferies set an initial price target of $10 for the shares, which "implies a 1.9x multiple on pro forma tangible book, which is a significant premium to the smid-cap average of 1.4x. However, we expect FNFG to generate a tangible ROE profile in the high teens pro forma for the HSBC deal (~19% vs. 10% for peers), which warrants a premium multiple, in our view."

Haire estimates that in 2013 First Niagara will earn $1.15 a share, delivering "a strong tangible ROE profile (near 20%) on a pro forma tangible book value per share of $5.20."

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

this stock



Written by Philip van Doorn in Jupiter, Fla.

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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 TheStreet.com 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.