We have recently lowered the long-term recommendation for
The St. Joe Company
(
JOE
), a publicly held real estate company, from 'Outperform' to
'Neutral' as we anticipate it to perform in line with the broader
market.
Based in Jacksonville, Florida, St. Joe is one of the largest
real estate developers of Northwest Florida. Over the years, the
company has developed successful residential and commercial
projects and related infrastructure, which in turn has attracted
regional and national businesses to the area that contributed to
the regional growth and prosperity.
The Northwest Florida Beaches International Airport developed by
St. Joe is the first new international airport opened in the U.S.
since the 2001 terrorist attack, and is expected to become a major
growth driver for the region. The airport greatly increases the
future value of its holdings, and provides an upside potential for
St. Joe. The company has also launched Venture Crossings Enterprise
Centre at West Bay - a commercial development spanning 1,000 acres
adjacent to the new airport, for industries, offices, retailers and
hotels, which will likely have a positive economic impact on the
region in the long run.
Over the last few quarters, St. Joe has significantly reduced
its debt through stringent cost-cutting measures and reduction in
operating expenses. The elimination of debt greatly reduces the
risk to shareholders and strengthens the balance sheet with a more
efficient and less capital-intensive business model, giving the
company the flexibility to weather any possible downturn in
residential real estate.
However, St. Joe has historically generated considerable revenue
from rural land sales. With a tough macroeconomic environment,
potential buyers have struggled to obtain finances for commercial
projects, and selling land at attractive prices has become
increasingly difficult. Consequently, revenue from rural land sales
has virtually dried up, and is likely to affect its long-term
profitability.
With large exposure to residential real estate business, St. Joe
has no near-term growth catalyst and has reported losses in three
of the four quarters of 2010. The company is also expected to
repeat this dubious feat in 2011 as well. In addition, St. Joe's
business is primarily concentrated in Florida - one of the hardest
hit states in the recession. We would avoid investing in the stock
for the short-term.
We presently have a Zacks #3 Rank for St. Joe, which translates
into a short-term 'Hold' rating. However, we have an 'Outperform'
recommendation and a Zacks #1 Rank for
Rayonier Inc.
(
RYN
), one of the competitors of St. Joe.
ST JOE CO (
JOE
): Free Stock Analysis Report
RAYONIER INC (
RYN
): Free Stock Analysis Report
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