Equity Research Initiating Coverage. Lamar Advertising Outdoor LAMR, $68.15, BUY Initiating Coverage with a BUY Rating and an $85 Target Price

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1 Equity Research Initiating Coverage January 16, 2007 Laura Martin, CFA Soleil Sales and Research Trading Ticker LAMR Price $ Wk. Range $45-72 Rating BUY Price Target $85 Shares Out (M) 101 Market Cap (B) $6.9 Yield 0% Trading Vol(M) Market NASDAQ Sector Opinion: Outdoor benefits from new technologies that have higher ROIs than historical infrastructure and that drive a shift of advertising from other local media into Outdoor. Because Outdoor is inexpensive, geographically targeted and has high barriers to entry, we expect LT valuation models to be revised upward during Defensively, Outdoor has proven largely immune to the shift of ad dollars to the Internet while a consolidated Outdoor industry structure suggests pricing power and profit growth for the foreseeable future. FYE Dec 31: 4Q06E 2006E 2007E Revenue ($mm) $287 $1,120 $1,210 EBITDA ($mm) $126 $498 $561 EPS $0.09 $0.44 $0.66 P/E NM Lamar Advertising Outdoor LAMR, $68.15, BUY and an $85 Target Price INVESTMENT THESIS We initiate coverage of Lamar Advertising Outdoor (LAMR) with a BUY rating and a 12-month target price of $85. During 2006, long term growth expectations for LAMR were revised upwards by 200 basis points to 8%. Because Outdoor is inexpensive, geographically targeted and has high barriers to entry, we expect long term valuations for LAMR to be revised upward again during Outdoor benefits from new technologies that drive faster growth and have higher ROIs than static billboards. The immediacy of digital billboards should drive an advertising shift from other local media into Outdoor. Finally, LAMR could benefit from going-private. LAMR INVESTMENT POSITIVES 1. Digital Economics. LAMR ended 2006 with approximately 300 digital billboards and we project 600 by 12/31/07. We believe that digital billboard economics will prove better than investors are currently modeling. We think the average revenue lift for a digital billboard will be 7-10x (not 5-7x as LAMR estimates), that digital margins will be closer to 65% (not the 45% on static billboards), and that digital penetrations will be higher than currently estimated. If any of these assumptions prove accurate, LAMR is undervalued today. 2. Day-Parting. After growth estimates are revised upward once for realistic digital billboard economics, we believe a subsequent growth driver will be from day-parting where LAMR sells key parts of the day at a premium and attracts new advertisers to the less expensive day-parts. We believe Outdoor is similar to television with primetime, daytime, and late night and should have intraday pricing distinctions. LAMR worries that too much unbundling may destroy value (like radio). 3. Technology Benefits. Secularly, technology creates new revenue streams for the Outdoor industry, rather than threaten core revenue streams as it does with many other old-media businesses. For example, over time, digital signals can be sent from posters in pedestrian areas that interact with consumer cell phones to allow consumers to get more information (order tickets, get info, etc.). 4. Local Ad Shift. LAMR has already taken ad share from radio. LAMR s next target is newspapers, using the flexibility of digital billboards. 5. Event Upside. Clear Channel Communications (CCU, Not Rated) just sold for $19B equity value representing a 17% premium and an EV/EBITDA multiple of 12x, with two active private equity bidders vying for the asset. On the same basis (a 17% premium to current share price), LAMR would be worth $82 today, on a takeover. Important disclosure information is included on pages of this report. Recipients are directed to read these disclosures.

2 6. Aggressive Share Repurchases. On August 25, 2006, LAMR s Board authorized the repurchase of up to $250 million common stock and LAMR has been aggressively repurchasing shares ever since. 4Q06 ANALYSIS Table 1 includes LAMR s 4Q05A actual results vs. our 4Q06E estimates. Detailed 4Q06 Projections Table 1 LAMR: Selected Financial Information $ and shares in millions, except per share data 12/31/05A 12/31/06E 06/05 Net Revenues $258.5 $ % Operating Expenses Direct Advertising Exp. (ex D&A) $92.0 $ % G & A $45.7 $ % Corporate Expenses (ex D&A) $9.5 $ % Non-Cash Compensation $0.0 $4.9 NA Depreciation & Amortization $74.3 $ % (Gain) Loss on Disposition Assets $1.9 $ % Total Operating Expenses $223.4 $ % Operating Income $35.1 $ % Other Expense (Income) Loss on Debt Extinguishment $0 $0 Interest Income ($0.4) ($0.4) -3.6% Interest Expense $23.8 $ % Total Other $23.4 $ % Income Before Taxes $11.7 $ % Income Taxes $5.8 $ % Net Income $5.9 $ % Preferred Stock Dividends $0.1 $ % Net Income Applicable to Common $5.8 $ % EPS $0.05 $ % Diluted Shares Outstanding % Calculation of EBITDA Operating Income $35.1 $ % Plus: Non-Cash Compensation $0.0 $4.9 Depreciation and Amortization $74.3 $ % (Gain) Loss on Disposition of Assets $1.9 $ % EBITDA $111.2 $ % Sources: Company documents, Media Metrics estimates. 2

3 OUTDOOR INDUSTRY POSITIVES LAMR benefits from several secular industry positives, including: Outdoor Industry Investment Positives Outdoor Industry Ad Strength. Industry projections call for Outdoor growth rates second only to Internet advertising. Experts project 300 basis points of excess growth in 2007 Outdoor ad budgets vs total US ad growth. Price Waterhouse Coopers (PWC) projects 8% Outdoor ad growth vs 5% for overall US ad growth. Veronis Suhler projects 7% Outdoor ad growth vs 4% total US ad growth. 2. Outdoor A Fraction of Total US Ad Spending. In 2006, advertisers spent approximately 3% ($6.8 billion) on Outdoor advertising, out of approximately $210 billion of total US advertising, according to Veronis Suhler. We believe that the low level of Outdoor advertising represents upside potential for industry ad spending. 3. Barriers to Entry. There are significant barriers to entry protecting entrenched billboard operators. It is very difficult to get any new billboard approved owing to environmental outcry. This caps the threat from new billboards. The average contract term is 7-8 years, and this is lengthening. In renegotiating lease rates on existing billboards, LAMR owns the physical billboard so if a new fee can t be agreed upon, it cuts down its billboard and removes it. About ½ of LAMR s billboards are nonconforming which makes it unlikely that the landowner can put up ANY new billboard in that spot: he therefore loses the entire fee. In the ½ that are conforming, the city can try to get a higher lease fee from a new competitor, but his fee must consider the cost of building a new billboard from scratch. 4. Earnings Visibility. With 7-8 year contracts with landowners and 3-12 month contracts with advertisers, Outdoor earnings tend to be more visible than other media categories. LAMR sells its digital billboards in sections with 2 flips/minute booked for 1 year, 2 flips/minute booked for 3 months and 2 flips/minute booked from week to week, to aggregate 6 flips per minute total. 5. More Relevant Ads. Digital billboards give LAMR or the advertiser the ability to change messages instantaneously. Therefore, digital billboards represent a more timely and relevant message to the consumer and a more flexible ad medium for advertisers than traditional billboards. For example, if JC Penny buys a 1-month ad, it can advertise an upcoming weekend sale and on Monday it can change the billboard content to promote specific products in the store. 6. Low Cost. The Outdoor Advertising medium offers a more cost effective way to reach consumers when compared to Newspapers, TV and Radio, which all suffer from a declining audience and concern by advertisers as to the ability by consumers to program out advertisements. Outdoor advertising is one of the least expensive ad mediums, as shown in Chart 3

4 1, implying upside pricing potential. Chart 1 Cost Per Thousand (CPM) by Ad Medium Ad Medium Avg CPM Persons Reached per $1,000 Invested LAMR $ ,333 Outdoor $ ,832 Radio $ ,908 News Magazines (weekly) $ ,034 Newspapers $ ,128 Prime Time Network TV $ ,821 Source: Media Dynamics, 2005, & Media Metrics estimates. Outdoor Industry Positives 7. Historical Revenue Growth. According to the Outdoor Advertising Association of America (OAAA), over the past 36 years US outdoor advertising revenues grew at 9.8% annually (from $260 million in 1970 to $6.8 billion in 2006). This growth is much more robust than broadcast television (up 8%), radio (up 8%), and newspapers (up 6%), over the same period, according to Arbitron. In fact, US Outdoor ad growth has outpaced nominal GDP growth in 80% of the years since Audience Growth. Unlike other traditional media categories, which are losing audience to the Internet and Video Games, Outdoor s audience is actually expanding as more people enter the workforce and commuting times elongate. 96% of Americans say they travel in a vehicle (either as driver or passenger) each week, according to a 2001 Arbitron study. This is higher than Americans that listened to the radio (86%), watched the local evening news on TV (75%), or read the daily newspaper (69%) each week. Commute Times Lengthening. According to a 2001 U.S Federal Highway Administration study, the number of vehicle miles traveled in the U.S. grew 70% between 1980 and 2000 while roadway lane miles remained essentially flat (up 0.3%/year) over this period. As a result, average commute times increased to >25 minutes from 20 minutes over this period, according to the US Federal Highway Administration. Car Sales Drive Growth. Vehicle trends drive outdoor ad growth. The number of vehicles on the road between 1970 and 2000 grew 147%, according to the Department of Transportation. The number of daily vehicle trips increased by 102% and miles traveled/day grew by 110% over this period. The number of cars owned per household grew 143% from 1.9 cars owned in 1970 vs nearly 3 cars in 2000, according to the Department of Transportation. 4

5 LAMR Investment Negatives More Commuters. 129 million Americans commute to work each day, 88% of whom commute by vehicle (including 10% that carpool), according to the U.S. Census Bureau. This has been growing as more women enter the work force. The percent of working women has increased to approximately 60% of total (from 37% in 1970), according to the Department of Transportation. 9. Measurement Upside. In 2002, both Arbitron and Nielsen separately announced that they were working on new audience measurement systems for the Outdoor industry. Today, the Traffic Audit Bureau tracks how many people are exposed to outdoor advertising, but it doesn t track who is watching. Better demographic data through measurement represents upside revenue potential from national advertising. LAMR INVESTMENT NEGATIVES 1. Advertising Cyclicality. 100% of LAMR s revenue is advertising revenue. Of this, 96% is from the US, 3% is from Canada and 1% is from Puerto Rico. Advertising is closely linked to GDP growth. If the US economy slows and advertising slows with it, LAMR s growth rates could be lower than we currently expect. 2. Rollout of Digital Billboards May Slow. Much of the upside in LAMR is due to its plans for an aggressive roll out of digital billboards. If management is unable to implement this growth strategy, for legislative, environmental or economic reasons, the growth outlook for LAMR would be negatively impacted. 3. Supply Constraints. LAMR management has stated recently that its product supply of digital billboards is sufficient, but if there are supply shortages this could slow growth compared with our estimates. 4. Regulatory Risks. The Outdoor advertising industry is governed by the Highway Beautification Act of 1965 regarding size, spacing and lighting of billboards. In addition, states including Alaska, Hawaii, Maine and Vermont have banned all billboards entirely. Additionally, local governments have added their own limitations. Regulators may decide to impose stricter regulations to control digital brightness or perceived distractions to drivers. If these limitations grow tighter, LAMR would be negatively impacted. 5. Digital Regulatory Risks. The Highway Beautification Act (HBA) controls outdoor advertising along 306,000 miles of Federal-Aid Primary, Interstate, and National Highway System (NHS) roads. If this agency published that digital billboards threaten highway safety, it might slow the transition to digital on highways and cities, resulting in slower growth than we currently estimate. 6. Rising Lease Costs. In 2006, lease expense (pre-acquisitions) amounted to approximately 15% of LAMR s total revenue and leases are for terms of 7-8 years. If LAMR s lease rates increase as the economics from digital improve, its reported EBITDA could be negatively impacted. 5

6 LAMR Company Description 7. Management has Supervoting Shares. LAMR has two classes of stock. The B shares (which do not trade) have 10 votes per share and are owned by the Reilly family foundation. Both the CEO and COO are members of the Reilly family. Largely through the B shares, LAMR management controls 66% of the votes of LAMR. Public shareholders have little influence. COMPANY OVERVIEW LAMR has three types of outdoor advertising displays: billboards (90% of revenue), logo signs (5% of revenue) and transit advertising (5% of revenue) displays: Billboards (90% of Revenue). LAMR has 151,000 billboards that are spread across 40 states and in Puerto Rico. Lamar sells advertising space on two types of billboards: bulletins and posters. Bulletins are large, illuminated advertising structures usually located on major highways. Posters are smaller advertising structures located on major traffic arteries and streets in cities. Apart from these traditional sites, Lamar also has digital billboards, which are located on major traffic arteries and city streets. As of December 2005, the company operated approximately 73,000 bulletins and 78,000 posters 1. 1 Sources: Company website and 10K filings Logo sign advertising (5% of Revenue). Lamar is the largest highway logo sign company in the United States. It owns around 98,000 logo sign displays in 19 states and the province of Ontario, Canada, 1 Logo signs are used extensively by local businesses such as gas stations and motels to attract traffic. These directional signs also help in directing vehicle traffic to nearby services and tourist attractions. The company operates touristoriented directional signing (TODS) programs for the states of Nevada, Colorado, Nebraska, Missouri, Michigan, Ohio, Kentucky, Virginia and New Jersey, and the province of Ontario, Canada. As of December 2005, the company operated approximately 30,000 logo sign structures containing over 98,000 logo-advertising displays in the United States and Canada 1. Transit advertising (5% of Revenue). LAMR has more than 75 transit franchises that reach driving audiences in 18 states and 2 provinces in Canada. Lamar sells advertising space on the exterior and interior of public transportation vehicles, transit shelters and benches. Local Focus LAMR believes its focus on local marketing improves its Outdoor occupancy rates. About 82% of LAMR s revenues in 2005, were from local advertisements. In 3Q06, this hit 83%. We estimate that local/total revenue 2006 will be above 83%. Lamar has highly experienced regional and local managers, most of whom have been with the company for more than 20 6

7 years. With local account executives and additional local staff, the company provides high quality local sales and service. Management The Reilly family operates and controls Lamar through super-voting B shares. Management is deemed excellent, with a strong track record of profit growth and shareholder value creation. Lamar employs about 3,300 people across its 150 offices in the United States, Canada and Puerto Rico 1. Chart 2 lists key personnel at LAMR. Chart 2 LAMR: Key Personnel LAMR Management Title Name President and CEO Kevin P. Reilly, Jr. Chief Operating Officer Sean Reilly Treasurer and CEO Keith A. Istre Executive Vice President Brent McCoy Secretary and General Counsel James R. Mcllwain President of Interstate Logos Everett Stewart Vice President of Operations Robert B. Switzer Chief Marketing Officer Thomas F. Teepell VP/Director of National Sales John M. Miller Vice President of Governmental Relations Hal Kilshaw Vice President of Human Resources Tammy Duncan Source: 10-K. Growth Through Acquisitions Historically, Lamar has relied heavily on acquisitions for growth. It has enhanced its scale of operations by focused strategic acquisitions, resulting in increased operating efficiencies, greater geographic diversification and increased market penetration. The company has completed over 220 acquisitions of outdoor advertising businesses since It has relied on these acquisitions to offer opportunities for inter-market cross-selling and the opportunity to centralize and combine accounting and administrative functions, thereby achieving economies of scale. LAMR has a high-quality local sales and service capability that it leverages by acquiring high-profile bulletin displays that become available in larger markets. In 1999, Lamar Advertising made a $1.6 billion acquisition of Chancellor Media. After the completion of this acquisition, Lamar became the largest outdoor advertising company in the US, measured by number of displays. Chart 3 includes selected recent acquisitions by LAMR. 7

8 Chart 3 LAMR Acquisition History Target Name Date Consideration American Displays, Inc 5-Jan-99 $14.5 million (Cash) KJS, LLC 1-Feb-99 $40.5 million (Cash) Frank Hardie, Inc 1-Apr-99 $20.3 million (Cash) Vivid, Inc 1-Jun-99 $22.1 million (Cash) Chancellor Media Outdoor Corporation 15-Sep-99 $700 million in cash and 26,227,273 shares of the Company's Class A common stock valued at approximately $947 million Obie Media Corp 19-Jan-05 $43 million worth of stock and $23 million in Obie debt Source: Strong Financial Performance Lamar crossed the $1 billion revenue mark for the first time in fiscal 2005, a 15.7% increase over EBITDA grew by 15.9% (from $393 million to $455.8 million). Net income grew from $13.1 million in 2004 to $41.8 million in Chart 4 includes recent revenue and net income trends. Chart 4 Revenue and Net Income Trends, FY2003-3Q06A 1,200 1, (200) Mths ended 30 Sept 2006 Revenue Net income Source: LAMR. LAMR Customers Lamar caters to a diverse customer base ranging from restaurants to banks, with restaurants, retailers and automotive companies accounting for 30% of the total billboard revenues. LAMR faces little customer risk as no individual advertiser accounted for more than 2% of the billboard advertising net revenues in 2006, by our estimates. Competitors Clear Channel Outdoor Holdings, Inc. (CCO, Buy) and CBS Outdoor (CBS, Buy) are two major competitors to Lamar. Both these companies operate 8

9 billboards, street furniture displays, transit displays and other out-of-home advertising displays in North America and other major countries of the world. Being bigger, they have corporate relationships with large media conglomerates, while their wide product offering enables them to cross-sell more effectively than Lamar. Lamar also faces competition from advertising companies focusing on other media such as television broadcast, cable television, radio, print, direct mail marketing, telephone directories, the Internet and other out-of-home advertising media such as advertising displays in shopping centers, malls, airports, stadiums, movie theaters and supermarkets. Capital Spending LAMR incurs capital expenditures for purchasing new billboard displays, logo signs and transit contracts and for maintaining the existing ones. For the year ended 2005, Lamar incurred $121 million and we estimate around $110 million in 2006, which included expenses to upgrade its logo signs but excludes capital expenditures related to deploying new digital billboards. Chart 5 includes capital spending by source. Chart 5 Capital Spending Mix, 2005A Logos 6% Bill board 72% Transit 1% Land and Buildings 12% Plant property and Equipment 9% Source:10K Filings. LAMR s History Lamar Advertising was formed as Pensacola Advertising Company, a small poster company created to promote an opera company called Pensacola Opera House in the early 1900s. In 1908, the founding members dissolved their three-year partnership by dividing the assets of the partnership amongst themselves. Mr. Charles W. Lamar, one of the founding members, 9

10 was left with the poster company, which he renamed as Lamar Outdoor Advertising Company. In 1996, Lamar made its first public offering of stock, which began trading on the NASDAQ exchange under the symbol LAMR. The company was reorganized to a holding and operating company structure on July 20, The operating company (then called Lamar Advertising Company) was renamed as Lamar Media Corp. The operating company s stockholders became stockholders of a new holding company called Lamar Advertising Company. Lamar Media Corp. became a wholly-owned subsidiary of Lamar Advertising. Target Price Calculation Valuation Summary: We calculate 8 forms of valuation for LAMR TARGET PRICE Our 12-month target price of $85 is an average of 4 forms of valuation, including DCF, APV, FTE and PMV valuation calculations. (Please see Tables 2 & 6-12.) VALUATION Our BUY on LAMR is based on 8 forms of valuation, summarized in Table 2: Table 2 LAMR: Summary of Valuation Conclusions Embedded Expectations Embedded Growth 1 Perpetual Growth Rate Table 3 2.8% 2 Breakeven DCF Table 6 8.3% Price Theoretical Valuation Models Value 1/12/07 Upside 3 Discounted Cash Flow (DCF) Table 7 $87.17 $ % 4 Adjusted Present Value (APV) Table 8 $83.80 $ % 5 Equity Value/Share (FTE) Table 9 $85.46 $ % 6 Private Market Value (PMV) Table 12 $84.98 $ % Average $85.35 $ % Other Valuation Metrics 2007E 7 EV/Sales Table EV/EBITDA Table P/E Table FCF/Share Table 11 $ EV/FCF Table FCF Yield (FCF/Current Price) Table 11 6% Source: Media Metrics research. 1. The Implied Perpetual Growth Rate After 2011 methodology is a quick check on whether the current share price embeds faster or slower growth than the economy over the long run. It is difficult for any company to sustain faster growth than nominal GDP (3%) forever. Table 3 10

11 includes the results of this valuation analysis. Table 3 LAMR: Implied Perpetual Growth Rate After 2011 in millions Market-Based Enterprise Value $9,038 WACC 9.0% Unlevered FCF in 2011 (See DCF, Table 7) $564 Implied Perpetual Growth Rate After % 1 Calculated as G = (Ent Value x WACC) - (FCF in year 5) / Ent Value Sources: Company Reports, Media Metrics Estimates 2. The Breakeven DCF valuation methodology uses the current share price to calculate the market s growth expectations for the enterprise, including capital efficiency trends. This valuation methodology concludes that LAMR must achieve a 10-year OIBDA compound annual growth rate of about 8.3% to justify its current share price. (Please see Table 6.) Overview and Conclusions from 8 forms of Valuation 3. The Standard DCF is widely used on Wall Street because it is a rigorous bottoms-up valuation of the enterprise based on discounting its long-term cash flows and removing the impact of non-cash accounting conventions. Positives and negatives of this valuation methodology are highlighted aside the calculation in Table The Adjusted Present Value analysis breaks the value equation into two pieces; the value created by operations and the value created by tax and debt shelters. That is, APV provides a clear and detailed picture of tax shelters from financing and debt capacity and can give early warning to potential debt repayment issues. (Please see Table 8.) 5. The Equity Value per Share is the most applicable valuation for equity holders. Traditional valuation metrics calculate the value of the enterprise, and then subtract debt to arrive at equity value. This model highlights the factors that enhance and/or impair equity value, without reference to debt. (Please see Table 9.) 6. In Table 10 we summarize several valuation multiples for Sales, OIBDA and P/E. LAMR s EV/EBITDA trading multiple of approximately 16x 2007E EBITDA is toward the high end of multiples during the past 2 decades for classic media industries. 7. In Table 11, we present Free Cash Flow valuation metrics. Our Free Cash Flow analysis shows that LAMR is currently valued at about 21x 2007E Free Cash flow and has a 6% free cash flow yield. 8. In Table 12, we present a Private Market Analysis. This analysis indicates that current trading levels represent a 21% discount to the company s private market value. 11

12 Table 4 LAMR: Selected Financial Information $ and shares in millions, except per share data 2005A 3/31/06A 6/30/06A 9/30/06A 12/31/06E 2006E Net Revenues $1,021.7 $253.3 $287.6 $292.0 $286.8 $1,119.7 Operating Expenses Direct Advertising Exp. (ex D&A) $353.1 $95.2 $96.4 $98.6 $101.0 $391.2 G & A $176.1 $46.3 $45.8 $48.4 $48.8 $189.3 Corporate Expenses (ex D&A) $36.6 $10.0 $9.9 $10.9 $10.9 $41.7 Non-Cash Compensation $0.0 $3.0 $2.9 $6.3 $4.9 $17.1 Depreciation & Amortization $290.1 $73.2 $74.1 $76.0 $76.0 $299.3 (Gain) Loss on Disposition Assets ($1.1) ($1.7) ($0.7) ($7.5) $0.0 ($9.9) Total Operating Expenses $854.8 $226.0 $228.4 $232.7 $241.5 $928.6 Operating Income $166.9 $27.3 $59.2 $59.3 $45.3 $191.1 Other Expense (Income) Loss on Debt Extinguishment $4.0 $0.0 $0.0 $0.0 $0.0 $0.0 Interest Income ($1.5) ($0.2) ($0.4) ($0.4) ($0.4) ($1.4) Interest Expense $90.7 $24.8 $27.1 $29.8 $30.0 $111.7 Total Other $93.2 $24.6 $26.7 $29.4 $29.6 $110.3 Income Before Taxes $73.7 $2.7 $32.5 $29.9 $15.7 $80.8 Income Taxes ($31.9) ($1.2) $14.0 $13.2 $6.7 $32.7 Net Income $41.8 $1.5 $18.5 $16.7 $9.0 $45.7 Preferred Stock Dividends $0.4 $0.1 $0.1 $0.1 $0.1 $0.4 Net Income Applicable to Common $41.4 $1.4 $18.4 $16.6 $8.9 $45.3 EPS $0.39 $0.01 $0.18 $0.16 $0.09 $0.44 Diluted Shares Outstanding Calculation of EBITDA Operating Income $166.9 $27.3 $59.2 $59.3 $45.3 $191.1 Plus: Non-Cash Compensation $0.0 $3.0 $2.9 $6.3 $4.9 $17.1 Depreciation and Amortization $290.1 $73.2 $74.1 $76.0 $76.0 $299.3 (Gain) Loss on Disposition of Assets ($1.1) ($1.7) ($0.7) ($7.5) $0.0 ($9.9) EBITDA $455.9 $101.8 $135.5 $134.1 $126.2 $497.6 Sources: Company documents, Media Metrics estimates. 12

13 Table 5 LAMR: Segment Annual Financial Information, 2005A-2007E $ and shares in millions, except per share data 2005A 2006E 2007E '05-'07 Net Revenues $1,021.7 $1,119.7 $1, % Operating Expenses Direct Advertising Exp. (ex D&A) $353.1 $391.2 $ % G & A $176.1 $189.3 $ % Corporate Expenses (ex D&A) $36.6 $41.7 $ % Non-Cash Compensation $0.0 $17.1 $19.0 NA Depreciation & Amortization $290.1 $299.3 $ % (Gain) Loss on Disposition Assets ($1.1) ($9.9) $ % Total Operating Expenses $854.8 $928.6 $ % Operating Income $166.9 $191.1 $ % Other Expense (Income) Loss on Debt Extinguishment $4.0 $0.0 $ % Interest Income ($1.5) ($1.4) ($1.6) 3.3% Interest Expense $90.7 $111.7 $ % Total Other $93.2 $110.3 $ % Income Before Taxes $73.7 $80.8 $ % Income Taxes ($31.9) $32.7 $45.4 NA Net Income $41.8 $45.7 $ % Preferred Stock Dividends $0.4 $0.4 $ % Net Income Applicable to Common $41.4 $45.3 $ % EPS $0.39 $0.44 $ % Diluted Shares Outstanding % Calculation of EBITDA Operating Income $167 $191 $ % Plus: Non-Cash Compensation $0 $17 $19 Depreciation and Amortization $290 $299 $ % (Gain) Loss on Disposition of Assets ($1) ($10) $0 EBITDA $456 $498 $ % Sources: Company documents, Media Metrics estimates. 13

14 Table 6 LAMR: Breakeven Discounted Cash Flow Valuation Calculation, 2007E E $ and shares in millions, except per share data Valuation Conclusions 12/31/07E 2006E Breakeven Discounted Cash Flow Valuation Sum of PV of Free Cash Flow 1 $3,533 Why We Calculate: BE DCF uses the current share price to PV of Terminal Value Discounted at WACC 1 $5,669 calculate the market's growth expectations for the enterprise. Value of Operations (WACC Method) $9,202 Strengths Plus: Excess Cash at 12/31/07E $10 $10 1 Makes no assumption about growth for first 10 years Plus: Non-Consolidated Assets (From PMV) $0 2 Prevents over-optimism by working backwards Less: Minority Interest $0 $0 3 Data widely available and model well understood Less: Unfunded Retirement Liabilities ($150) ($140) 4 Explicitly forecasts capital needs (WC & CapX) Enterprise Value $9,062 5 Uses a levered beta (widely available) Less: Debt at 12/31/07E ($1,400) ($1,800) Less: Lease Obligations ($500) ($1,000) Less: Preferred Stock Outstanding ($6) $6 Weaknesses Less: Value of Options & Restricted Sk, After-tax ($45) $45 1 Terminal value big & based on low visiblity projections Common Equity Value $7,112 2 Model assumes constant debt/equity ratio Fully Diluted Shares 12/31/2007E Complex to calculate Breakeven DCF Value/Share $ Calculates the enterprise value first, then equity value Current Share 1/12/07 $70.27 Discount to DCF Value (DCF-Current Price/DCF) 0% 1 Calculation of the Value of Operations (WACC Method) Required LT FYE 12/31: 2006E 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E Growth Rate EBITDA (after corp): $498 $561 $607 $658 $712 $771 $835 $905 $980 $1,061 $1, % - Depreciation ($299) ($310) ($328) ($329) ($356) ($386) ($418) ($452) ($490) ($531) ($575) + Option Exercise Proceed $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 + Int & Inv Income only $1 $2 $2 $2 $2 $2 $2 $2 $2 $2 $2 EBIT $225 $277 $306 $355 $383 $412 $444 $479 $517 $557 $601 Cash Taxes (at 25%) ($56) ($69) ($76) ($89) ($96) ($103) ($111) ($120) ($129) ($139) ($150) Plus: Depreciation $299 $310 $328 $329 $356 $386 $418 $452 $490 $531 $575 Plus: Sk Based Comp Exp $16 $16 $15 $15 $15 $15 $15 $15 $15 $15 $15 Working Capital Change ($12) ($8) ($7) ($7) ($7) ($8) ($8) ($9) ($10) ($11) ($11) Less: Capital Spending ($230) ($200) ($164) ($164) ($178) ($193) ($209) ($226) ($245) ($265) ($287) FCF from Operations $242 $326 $402 $439 $473 $509 $549 $591 $638 $688 $742 PV Discounted at WACC 2 $326 $369 $370 $365 $361 $356 $352 $348 $345 $341 Sum of PV of Free Cash Flow $3,533 Terminal Value of 2016E FCF 3 $12,329 PV of Terminal Value at WACC 2 $5,669 Discount Period Calculation of WACC: 3 Calculation of Terminal Multiple (WACC Method) 10-Year Risk Free Rate ("RFR") 5.0% WACC 9.0% Equity Risk Premium (Ibbotson-Arithmetic) 6.0% Long-term Nominal GDP Growth 3.0% Levered Beta (Bloomberg) 1.00 WACC-GDP Growth 6.0% Target Equity/(Debt + Equity) 71% Terminal Multiple [1/(WACC-Growth Rate)] 16.6 Debt Rating (Theoretical Only -No real rating) BBB- Debt Spread 1.4% Marginal Tax Rate ("T") 35.0% WACC 9.0% (RFR+(Equity Risk Premium x Beta)) x % Equity/Total Capital + ((RFR + Debt Spread) x (1-T) x % Debt/Total Capital). Sources: Company Reports, Media Metrics estimates. 14

15 Table 7 LAMR: Standard DCF Calculation, 2007E-2016E $ and shares in millions, except per share data Valuation Conclusions 12/31/07E % of Total Standard Discounted Cash Flow (DCF) Valuation Sum of PV of Free Cash Flow 1 $3,960 37% Why We Calculate: DCF is a rigorous bottoms-up valuation PV of Terminal Value Discounted at WACC 1 $6,934 64% of the enterprise focusing on cash flows (not accounting) Value of Operations (WACC Method) $10, % Strengths Plus: Excess Cash at 12/31/07E $10 1 Focuses on operations. Removes financing Plus: Non-Consolidated Assets (From PMV) $0 2 Focuses on FCF. Removes non-cash accounting Less: Minority Interest $0 3 Explicitly forecasts capital needs (WC & CapX) Less: Unfunded Retirement Liabilities ($150) 3 Uses a levered beta (widely available) Enterprise Value $10, % 4 Ent value focus captures entire business model Less: Debt at 12/31/07E ($1,400) Less: Lease Obligations ($500) Weaknesses Less: Preferred Stock Outstanding ($6) 1 Many assumptions. Valuation can be manipulated Less: Value of Options & Restricted Sk, After-tax ($45) 2 Terminal value big & based on low visiblity projections Common Equity Value $8,804 82% 3 Model assumes constant debt/equity ratio Fully Diluted Shares 12/31/2007E Complex to calculate DCF Value/Share $ Calculates the enterprise value first, then equity value Current Share 1/12/07 $70.27 Upside Potential (DCF-Current Price/Current Price) 24% 1 Calculation of the Value of Operations (WACC Method) CAGR FYE 12/31: 2006E 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E '07-16E EBITDA (after corp): $498 $561 $622 $691 $767 $851 $945 $1,049 $1,164 $1,292 $1, % - Depreciation ($299) ($310) ($328) ($329) ($356) ($386) ($418) ($452) ($490) ($531) ($575) + Option Exercise Proceed $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 + Int & Inv Income only $1 $2 $2 $2 $2 $2 $2 $2 $2 $2 $2 EBITA $225 $277 $321 $389 $437 $492 $554 $623 $701 $788 $886 Cash Taxes (at 25%) ($56) ($69) ($80) ($97) ($109) ($123) ($138) ($156) ($175) ($197) ($222) Plus: Depreciation $299 $310 $328 $329 $356 $386 $418 $452 $490 $531 $575 Plus: Sk Based Comp Exp $16 $16 $15 $15 $15 $15 $15 $15 $15 $15 $15 Working Capital Change ($12) ($8) ($14) ($15) ($17) ($19) ($21) ($23) ($26) ($28) ($32) Less: Capital Spending ($230) ($200) ($137) ($152) ($169) ($187) ($208) ($231) ($256) ($284) ($316) FCF from Operations $242 $326 $433 $468 $514 $564 $619 $681 $749 $824 $ % PV Discounted at WACC 2 $326 $397 $394 $396 $399 $402 $406 $409 $413 $417 Sum of PV of Free Cash Flow $3,960 Terminal Value of 2016E FCF 3 $15,081 PV of Terminal Value at WACC 2 $6,934 Discount Period Calculation of WACC: 3 Calculation of Terminal Multiple (WACC Method) 10-Year Risk Free Rate ("RFR") 5.0% WACC 9.0% Equity Risk Premium (Ibbotson-Arithmetic) 6.0% Long-term Nominal GDP Growth 3.0% Levered Beta (Bloomberg) 1.00 WACC-GDP Growth 6.0% Target Equity/(Debt + Equity) 71% Terminal Multiple [1/(WACC-Growth Rate)] 16.6 Debt Rating BBB- Debt Spread 1.4% Marginal Tax Rate ("T") 35.0% WACC 9.0% (RFR+(Equity Risk Premium x Beta)) x % Equity/Total Capital + ((RFR + Debt Spread) x (1-T) x % Debt/Total Capital). Sources: Company Reports, Media Metrics estimates. 15

16 Table 8 LAMR: Adjusted Present Value (APV) Calculation $ and shares in millions, except per share data Valuation Conclusions % of Total Adjusted Present Value (APV) Calculation PV of Free Cash Flow at Equity Cost 1 $3,920 38% Why We Calculate: APV separates the value of a company PV of Terminal Value Discounted at Equity Cost 1 $5,735 56% into value contributed by financing vs operations. Value of Operations (APV Method) $9,655 94% Strengths Plus: Value of Financing 2 $798 1 Identifies the value created by taxes and leverage Plus: Excess Cash at 12/31/07E $10 2 Can explicitly project capital structure changes Plus: Non-Consolidated Assets (From PMV) $0 3 Allows forecasting of capital spending cycles Less: Minority Interest $0 Less: Unfunded Retirement Liabilities ($150) Enterprise Value $10, % Weaknesses Less: Debt at 12/31/07E ($1,400) 1 Complex to calculate Less: Lease Obligations ($500) 2 Waste of time if capital structure is stable Less: Preferred Stock Outstanding $6 3 Model offers few insights if there is little or no debt Less: Value of Options & Restricted Sk, After-tax $45 4 Typically higher valuations as finance value is added Common Equity Value $8,463 82% Fully Diluted Shares 12/31/2007E 101 APV Value/Share $83.80 Current Share 1/12/07 $70.27 Upside Potential (DCF-Current Price/Current Price) 19% 1 Calculation of the Value of Operations (APV Method) CAGR FYE 12/31: 2006E 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E '07-16E FCF from Ops (See DCF) $242 $326 $433 $468 $514 $564 $619 $681 $749 $824 $ % PV Discounted at Equity Cost 3 $326 $396 $392 $394 $396 $398 $400 $403 $406 $409 Sum of PV of Free Cash Flow $3,920 Terminal Value of 2015E FCF 4 $12,726 PV of Terminal Value at Equity Cost 3 $5,735 Discount Period Calculation of the Value of Financing FYE 12/31: 2006E 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E Debt Outstanding $1,800 $1,400 Proceeds from Issuance Less: Issue Costs Less: Interest Expense ($82) ($81) ($79) ($78) ($76) ($74) ($72) ($70) ($70) ($69) Plus: Tax Shelter on Int Expense $29 $28 $28 $27 $27 $26 $25 $25 $24 $24 Principal Payments (50% of FCF from Ops) ($22) ($23) ($26) ($28) ($31) ($34) ($37) ($8) ($9) Cash Flows from Financing (CFFF) $1,347 ($74) ($75) ($76) ($78) ($79) ($81) ($83) ($54) ($54) PV of CFFF (at Debt Cost) 5 $1,347 ($71) ($70) ($68) ($67) ($66) ($65) ($64) ($40) ($39) PV Value of Financing $798 Discount Period Calculation of Cost of Unlevered Equity: 4 Calculation of Terminal Multiple (APV Method) 10-Year Risk Free Rate ("RFR") 5.0% Cost of Unlevered Equity 9.3% Equity Risk Premium (Ibbotson-Arithmetic) 6.0% LT GDP Growth x Target Equity % 2.1% Levered Beta (Bloomberg) 1.0 Unlevered Equity-GDP Growth 7.1% Target Equity/(Debt + Equity) 71% Terminal Multiple [1/(Equity-Growth Rate)] 14.0 Unlevered Beta (L Beta x Equity/EV) 0.71 Cost of Unlevered Equity 9.3% 5 Calculation of Debt Cost Calculated as RFR + (Equity Risk Premium x Unlevered Beta) Debt Rating BBB- Yield on 10-Yr Notes (Bloomberg) 5.9% Marginal Tax Rate ("T") 35% Sources: Company Reports, Media Metrics estimates. After-Tax Cost of Debt [Yield x (1-T)] 3.8% 16

17 Table 9 LAMR: Calculation of Equity Value per Share $ and shares in millions, except per share data Valuation Conclusions % of Total Flows to Equity (FTE) Valuation Sum of PV of Free Cash Flow 1 $3,713 43% Why We Calculate: FTE details the factors that drive and/or PV of Terminal Value Discounted at WACC 1 $5,103 59% impair shareholder equity value. Value of Operations (Equity Method) $8, % Strengths Plus: Excess Cash at 12/31/07E $10 1 Narrow equity shareholder value focus Plus: Non-Consolidated Assets (From PMV) $0 2 Captures executive pay through options & warrants Less: Minority Interest $0 Less: Value of Options & Restricted Sk, After-tax ($45) Less: Unfunded Retirement Liabilities ($150) Common Equity Value $8, % Weaknesses Fully Diluted Shares 12/31/2007E Can become optimistic, without EV anchor Equity Value/Share $ Capital structure assumed to be constant Current Share 1/12/07 $70.27 Upside Potential (DCF-Current Price/Current Price) 22% 1 Calculation of the Value of Operations (Equity Method) CAGR FYE 12/31: 2006E 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E '07-16E EBITDA (after corp): $498 $561 $622 $691 $767 $851 $945 $1,049 $1,164 $1,292 $1, % - Depreciation ($299) ($310) ($328) ($329) ($356) ($386) ($418) ($452) ($490) ($531) ($575) - Interest Expense $0 ($120) ($100) ($80) ($60) ($40) ($20) $0 $0 $0 $0 -Preferred Dividends $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 + Option Exercise Proceeds $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 + Int & Inv Income only $1 $2 $2 $2 $2 $2 $2 $2 $2 $2 $2 EBIT $225 $157 $221 $309 $377 $452 $534 $623 $701 $788 $886 Cash Taxes (at 15%) ($34) ($24) ($33) ($46) ($57) ($68) ($80) ($93) ($105) ($118) ($133) Plus: Depreciation $299 $310 $328 $329 $356 $386 $418 $452 $490 $531 $575 Plus: Sk Based Comp Exp $16 $16 $15 $15 $15 $15 $15 $15 $15 $15 $15 Working Capital Change ($12) ($8) ($7) ($7) ($7) ($8) ($8) ($9) ($10) ($11) ($11) Less: Capital Spending ($230) ($200) ($164) ($164) ($178) ($193) ($209) ($226) ($245) ($265) ($287) FCF from Operations $265 $252 $360 $435 $507 $584 $669 $762 $846 $940 $1, % PV Discounted at Equity 2 $252 $325 $353 $371 $385 $397 $407 $407 $408 $408 Sum of PV of Free Cash Flow $3,713 Terminal Value of 2016E FCF 3 $13,054 PV of Terminal Value at Equity 2 $5,103 Discount Period Calculation of Required Return to Equity Holders: 3 Calculation of Terminal Multiple (Equity Method) 10-Year Risk Free Rate ("RFR") 5.0% Required Return to Equity Holders 11.0% Equity Risk Premium (Ibbotson-Arithmetic) 6.0% Long-term Nominal GDP Growth 3.0% Levered Beta (Bloomberg) 1.00 Equity-GDP Growth 8.0% Required Return to Equity Holders 11.0% Terminal Multiple [1/(Equity-Growth Rate)] 12.5 Calculated as RFR + (Equity Risk Premium x Beta) Calculation of Enterprise Value Common Equity Value $8,631 Plus: Debt at 12/31/07E $1,400 Plus: Lease Obligations $500 Plus: Preferred Stock Outstanding $6 Plus: Options & Warrants Outstanding $45 Enterprise Value $10,537 Sources: Company Reports, Media Metrics estimates. 17

18 Table 10 Table 11 LAMR: Valuation Multiples (Sales, EBITDA, P/E) LAMR: Free Cash Flow Valuation Metrics $ and shares in millions, except per share data $ and shares in millions, except per share data Valuation Conclusions 2007E Valuation Conclusions 2007E Market-Based Enterprise Value 1 $9,038 FCF/Share 2 $ E Sales (From Annual Projections) $1,210 Current Price 1/12/07 $70.27 EV/Sales 7.5 FCF Yield 6% Market-Based Enterprise Value 1 $9,038 FCF 2 $ E EBITDA (From Annual Projections) $ E EBITDA (From Annual Projections) $561 EV/EBITDA 16.1 FCF Conversion Rate (FCF/EBITDA) 76% Target Price $80.00 Adjusted Enterprise Value 1 $9,038 Target Price EV/EBITDA 17.9 FCF 2 $426 EV/FCF 21.2 Current Price 1/12/07 $ Calculation of Free Cash Flow 2007E EPS (From Annual Projections) $0.66 Year End 12/31: 2007E P/E Ratio EBITDA $561 Plus: Option Exercise Proceeds $25 1 Calculation of Market-Based Enterprise Value Less: Cash Interest Expense $118 Year End 12/31: 2007E Less: Minority Interest $0 Current Share Price 01/12/07 $70.27 Less: Preferred Dividends ($0.4) Fully Diluted Shares 12/31/ Less: Cash Taxes ($69) Market Capitalization $7,097 Less: Change in Working Capital ($8) Less: Capital Spending ($200) Less: Excess Cash ($10) Free Cash Flow $426 Less: Non-Consolidated Assets $0 Plus: Unfunded Retirement Liabilities $0 Shares Outstanding 101 Plus: Debt at 12/31/07E $1,400 FCF/Share $4.22 Plus: Lease Obligations $500 Sources: Company Reports, Media Metrics estimates. Plus: Preferred Stock Outstanding $6 Plus: Options & Warrants Outstanding $45 Market-Based Enterprise Value $9,038 Sources: Company Reports, Media Metrics estimates. 18

19 Table 12 LAMR: Private Market Value (PMV), 2007E $ and shares in millions, except per share data Valuation Conclusions 2007E % of Total Consolidated Asset Value 1 $10,531 99% Consolidated Corporate Expense 1 $143 1% Non-Consolidated Asset Value 2 $0 0% Total Asset Value $10, % Plus: Excess Cash at 12/31/07E $10 Less: Unfunded Retirement Liabs ($150) Less: Debt at 12/31/07E ($1,400) Less: Lease Obligations ($500) Less: Preferred Stock Outstanding ($6) Less: Value of Options & Restricted Sk, Af ($45) Total PMV $8,583 Fully Diluted Shares 12/31/2007E 101 PMV Value/Share $84.98 Current Share 1/12/07 $70.27 Upside Potential ((PMV-Price)/Price) 21% 1 Calculation of Consolidated Asset Value, 2007E Year End 12/31: EBITDA Multiple PMV Segment EBITDA $ $10,531 Corporate Expense $42 3 $143 Consolidated Value $ $10,674 2 Calculation of Non-Consolidated Asset Value % Owned PMV Outdoor off BS Assets $0 $0 Non-Consolidated Asset Value $0 Sources: Company Reports, Media Metrics estimates. 19

20 Required Regulatory Disclosures Analyst Certification I hereby certify that the views expressed in the foregoing research report accurately reflect my personal views about the subject securities and issuer(s) as of the date of this report. I further certify that no part of my compensation was, is, or will be directly, or indirectly, related to the specific recommendations or views contained in this research report. By: Laura Martin, CFA SOLEIL SECURITIES DISCLOSURE INFORMATION ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST Soleil Securities Corporation, in order to provide its clients with research independent from investment-banking conflicts, has contracted with the publisher and/or author of this report. Soleil Securities Corporation does not provide investment banking services. The author of this report is compensated by Soleil Securities Corporation by receipt of a share of commissions paid to Soleil by customers crediting the author for their order(s). Soleil and Analysts Ratings Key: Buy: In the analyst's opinion, the stock will outperform the general market over the next 12 months. Hold: In the analyst's opinion, the stock will be inline with the general market over the next 12 months. Sell: In the analyst's opinion, the stock will underperform the general market over the next 12 months. ADDITIONAL DISCLOSURES INFORMATION Soleil Securities Corporation: The opinions, forecasts, and recommendations contained in this report are those of the analyst preparing the report and are based upon the information available to them as of the date of the report. The analysts are basing their opinions upon information they have received from sources they believe to be accurate and reliable and the completeness and/or accuracy is neither implied nor guaranteed. The opinions and recommendations are subject to change without notice. Soleil Securities Corporation has no obligation to continue to provide this research product and no such obligation is implied or guaranteed. The report is provided to the institutional clients of Soleil 20

21 Securities Corporation for informational purposes only and is not an offer or a solicitation for the purchase or sale of any financial instrument. Companies Mentioned CBS Outdoor (CBS, $31.48, Buy, NYSE) Clear Channel Communications (CCU, $36.23, NA, NYSE) Clear Channel Outdoor Holdings (CCO, $29.68, Buy, NYSE) Lamar Advertising (LAMR, $68.15, Buy, NASDAQ) Additional Disclosure Information IMPORTANT MEDIA METRICS DISCLOSURE INFORMATION: The opinions, forecasts and recommendations contained in this report are those of the analyst preparing the report and are based upon the information available to the analyst as of the date of the report. The analyst s opinion is based upon information received from sources believed to be accurate and reliable and the completeness and/or accuracy is neither implied nor guaranteed. The opinions and recommendations are subject to change without notice and Media Metrics is under no obligation to provide updates to the opinions and information contained herein. This report is provided to the institutional clients of Media Metrics for informational purposes only and is not an offer or a solicitation for the purchase or sale of any financial instrument. Media Metrics is not affiliated with an investment bank and does not provide investment banking services. Copyright 2007 by Media Metrics. All rights reserved. 21