We are downgrading our recommendation on St. Joe to Neutral from
Outperform on concerns of top-line growth. The company's
third-quarter 2014 results came below the Zacks Consensus Estimate
as well as the comparable period prior-year figure, due to a
decline in both real estate and timber sales. In fact, the
company's total revenue came 34.8% down from the year-ago quarter.
This decline in sales revenue from a number of its segments adds to
our concerns. However, in the long run, we believe that the
company's focus on enhancing its resort-based operations would help
it to recover the profitability. Moreover, the company continues to
explore new commercial and industrial uses for its land portfolio
to increase the future value of its holdings, which is encouraging.
Incorporated in 1936 and currently based in WaterSound, FL, The
St. Joe Company is engaged in real estate development and sales,
with notable interests in the timber industry. The company owned
approximately 567,000 acres of land (as of Dec 31, 2013) in timber
and resort, leisure and leasing assets concentrated mainly between
Tallahassee and Destin, FL. As of Sep 30, 2014, St. Joe had four
operating segments: residential real estate, commercial real
estate, resorts, leisure and leasing operations, and forestry.
The residential real estate segment (generated 8.3% of operating
revenues in the first nine months of 2014) produces revenues from
the development and sale of homes and homesites while the
commercial real estate segment (0.5%) vends undeveloped or
developed land and commercial operating property. On the other
hand, the resorts, leisure and leasing operations segment (6.6%)
reaps revenue and rental fees related to its vacation rental
program in the WaterColor Inn, WaterColor, WaterSound Beach and
neighboring communities and other resort, golf club, marina and
retail/commercial leasing operations. Finally, the forestry segment
(84.6%) generates and sells woodfiber, sawtimber as well as other
forest products and may sell the company's timber or rural land
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