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Citizens Communications

Citizens Communications. New Securities Group Rich Gallugi James Kocher. Table of Contents. Quick Facts Overview of Company Financial Ratio Comparison Stock Performance Stock Valuation Valuation by Comparables FCF and Common Equity Valuation Recent News/Activity

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Citizens Communications

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  1. Citizens Communications New Securities Group Rich Gallugi James Kocher

  2. Table of Contents • Quick Facts • Overview of Company • Financial Ratio Comparison • Stock Performance • Stock Valuation • Valuation by Comparables • FCF and Common Equity Valuation • Recent News/Activity • Holdings Breakdown/Insider Activity • Analyst Recommendations • Summary and Conclusions • Recommendations

  3. Quick Facts • Ticker: CZN • Sector: Technology • Industry: Telecom Services - Domestic • Market Cap: $4.47 Billion • Recent Stock Price: 13.20 (10/21/2007) • 52 week high/low: 12.50 - 16.05 • Beta: .93 • Shares outstanding: 338.43 Million • Dividend/Yield: $1.00 (7.60%) • P/E Ratio: 14.39 • PEG Ratio: 5.06

  4. Company Overview Citizens Communications Company is one of the nation's largest independent providers of telecommunications services. Known to customers by the brand name of Frontier, they offer local and long distance telephone service, Internet access, and satellite television. They operate in some 24 states, over 2.4 million access lines, serving rural areas, towns and small cities that other communications companies might overlook. The company was incorporated in the state of Delaware in 1935, but been in business for more than 100 years, and they have built our reputation by delivering the very best in telecommunications products and services to everyone from residential customers to small businesses to global organizations. In 2007, they acquired Commonwealth Telephone Enterprises, Inc.

  5. Company Overview Mission Statement: “Be the leader in providing communications services to residential and business customers in our markets” • The company has 5,446 full time employees • Television services includes the provision of access to all-digital television channels featuring movies, sports, news, music, and high-definition TV programming • The company was founded in 1927 and was formerly known as Citizens Utilities Company. Citizens Communications Company is based in Stamford, Connecticut. • Citizens Communications Co.'s Corporate Governance Quotient (CGQｨ) as of 1-Oct-07 is better than 46.5% of S&P 500 companies and 95% of Telecommunication Services companies.

  6. Financial Ratio Comparison

  7. Stock Performance 1 year

  8. Stock Performance 5 Year

  9. Stock Valuation

  10. Stock Valuation

  11. Valuation by Comparables

  12. Free Cash Flow and Common Equity Valuation

  13. Analyst Recommendations Mean recommendation = 2.8 Mean Target = 15.50 Analyst sentiment has not changed from month to month. 1 buy and 1 outperform, and 14 holds

  14. Recent News • Citizens Communications To Acquire Global Valley Networks and GVN Services For $62 Million • Citizens Communications announced that it has entered into an agreement with Country Road Communications LLC to acquire Global Valley Networks Inc. (GVN) and GVN Services (GVS) through the purchase from Country Road of 100% of the outstanding common stock of Evans Telephone Holdings, Inc., the parent company of GVN and GVS. The purchase price is $62 million in cash, subject to adjustment. Citizens intends to finance the acquisition with cash on hand. The transaction is expected to close within six to nine months.

  15. Recent News (cont) • Communications Company (NYSE:CZN) announced today that Peter C.B. Bynoe has been appointed to its Board of Directors effective October 1, 2007. Mr. Bynoe is a senior partner in the Chicago office of the international law firm DLA Piper and serves on its Executive Committee. He joined DLA Piper in 1995. • Prior to joining DLA Piper, Mr. Bynoe managed Telemat Ltd., a business consulting firm that he founded in 1982. From March 1988 to June 1992, he served as the Executive Director of the Illinois Sports Facilities Authority, a joint venture of the City of Chicago and State of Illinois created to develop a new Comiskey Park for the Chicago White Sox. Mr. Bynoe was responsible for all aspects of planning and executing the development of this $250 million project. The facility was completed on time and several million dollars under budget

  16. Holdings Breakdown

  17. Holdings Breakdown

  18. Recent Insider Activity

  19. Summary and Conclusions • Huge Free Cash Flow • Potential takeover target • First half of 2007, paid out 56% of FCF in dividends, lower than most small telecom peers • Benefiting from workforce cuts and continued growth of high margin calling services • 12 month target price is based on EBITDA multiple of 7.5X, is in line with other rural firms

  20. Recommendations • Buy • Future synergies with new acquisition • Large Free Cash Flows and potential for take over target • Buy at market • Not strong buy due to S&P quantitative model (overvalued)

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