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While I have been relatively hesitant on regional banks among financials for some time now, there is admittedly decent room for appreciation. The Street currently rates First Niagara (FNFG) a "buy" versus a "hold" for Huntington (HBAN). Based on my review of the fundamentals and DCF model, however, I find attractive risk/reward for both firms as macro headwinds dissipate.

From a multiples perspective, First Niagara and Huntington are cheap. The former trades at a respective 14.8x and 8.6x past and forward earnings, while the latter trades at a respective 10x and 9.2x past and forward earnings. To put this into perspective, consider that First Niagara is trading at only 76% of its historical 5-year average PE multiple. Consider further that the company also offers an attractive dividend yield of 3.4% and has 30% less volatility than the broader market.

At the fourth quarter earnings call, First Niagara's CEO, John Koelmel, emphasized focusing more on organic growth going forward:

Over the last 90 days, we've been very upfront in messaging that narrowing focus and the M&A pause. The communication reflects our recognition that in completing four deals in three years, increasing our footings by a factor of five; stretching our geographic reach across three additional states, we again need to narrowly focus on high performance operational execution of further building out all that we need to be one of the lead players when the economic tide again begin just to rise.

In the interim, with our strong profile and position across the footprint, we'll continue to capitalize on the abundant opportunities to take more market share each and every day, and further enhance the value of our franchise. We'll definitely keep playing offense and will certainly play a win, but that will be relatively small ball for the next couple of years.

Having divested certain branches, the company is now well-positioned to drive momentum and gain share in the commercial area. Fourth quarter EPS of $0.23 was roughly in-line with consensus, and loan growth was strong, particularly at the commercial line, as opposed to retail. Net interest income, a lower provision, and a 28.2% sequential improvement in net charge-offs were also noteworthy. The HSBC branch deal will improve scale whilst allowing for cross-selling opportunities. Investors should expect serious takeover activity to be limited over the next two years.

Consensus estimates for First Niagara's EPS forecast that it will decline by 1% to $0.97 in 2012 and then grow by 13.4% and 20% in the following two years. Assuming a multiple of 12x and a conservative 2013 EPS of $1.07, the rough intrinsic value of the stock is $12.84, implying 35.6% upside.

Huntington may have seen EPS decline 12% sequentially, but NIM expansion was relieving, given expectations for contraction. Management's implementation of Fair Play Banking and Optimal Customer Relationship Model will help reduce vulnerability to macro cyclicality.

Consensus estimates for Huntington's EPS forecast that it will be flat at $0.59 in 2012 and then grow by 8.5% and 17.2% in the following two years. Assuming a multiple of 12x and a conservative 2013 EPS of $0.62, the rough intrinsic value of the stock is $7.44, implying 26.1% upside.

Source: First Niagara May Soar 36%