7. First Niagara Financial Group

Shares of First Niagara Financial Group ( FNFG) of Buffalo closed at $8.50 Friday, declining 36% year-to-date.

A consensus price target of $10.89 implies 28% upside for the shares.

The company on Dec. 7 priced a $450 million common equity offering at $8.50 a share, and also priced a $350 million preferred offering with a very high coupon of 8.625%, as it raised capital in advance of completing pending purchase of 195 branches from HSBC ( HBC). First Niagara also cut its quarterly dividend in half, to 8 cents, translating to a dividend yield of 3.76%.

To address the Justice Department's concerns over First Niagara's market concentration following the branch purchase, the company has agreed to immediately sell 40 branches once the HSBC deal is completed, and also plans to sell an additional 60 branches in markets overlapping its current branch base.

Sterne Agee analyst still likes the First Niagara, although he said that it was "undeniable that the common shareholders have suffered a great deal of pain over the past six months over this transaction," with the company's "tangible book value being taken down 30%."

Kelly has an $11 price target for the shares, and estimates the company will earn 97 cents a share in 2012. "Over the next 12-18 months, as the company executes on the HSBC transaction, continues to post solid organic growth and rebuilds its capital base, we expect this significant valuation gap to other high-performing peers will begin to close," he said.

The shares trade for 8.2 times the consensus 2012 EPS estimate of $1.03, among analyst polled by FactSet, and for 1.6 times Kelly's reduced tangible book value estimate, following the December capital raise.

Out of 10 analysts covering First Niagara, four rate the shares a buy, five have neutral ratings, and one analyst recommends selling the shares.

With such a large transaction ahead, with another large divestiture of branches, 2012 will certainly be a messy year for First Niagara. Investors looking to build a position in this name need to commit for several years. The company has a very strong track record for integrating major acquisitions, but these things take time.

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