The St. Joe Company (JOE)

cdulan (97.89) Submitted: 5/14/08 2:03 PM : Start Price: $28.94 JOE Score: -13.22

I really appreciate TDRH's analysis, and want to encourage all of you who are short and wonder what is going on.

After the land auction in the first quarter, JOE is down to 657,000 acres after selling "57,000 plus acres of non-strategic rural lands for a total of $91 million".(1) This may have been non-strategic, but it could not have been absolutely useless land considering the lots fetched so much money in a down market. Using this sale as a barometer of the market value of the land holdings, JOE's land in this current market is worth $1600 / acre. Now simple math of $1600 / acre * remaining holdings only equals $1B in asset value.

Now I know estimates I gaver are rough. Some of that land is prime location, but also a lot of it is swamp land, close to the beach or not, and will take decades to have even "strategic" value. Looking at potential cash streams for the company over the next ten years, taking away overhead expenses I think it will be very difficult to obtain the $3B market cap(2) this company currently holds. Having fired most of the real estate development staff and exited most development projects, JOE is living on land sales right now. Asset sales are a subject of timing, buy low sell high. Due to JOEs lack of other income streams, they are selling low, and will probably have to sell another 57000 acres even lower next year to keep the lights on and the skeleton crew working. As an investor, the market value appears to be between the middle of these two numbers. Using market cap of $2B in a miserable land asset market makes the share price today look very pricy.

JOE has nothing else.

Legacy real estate development sales are currently a drag, not a income providing source.

Timber sales are miniscule.

On top of this, management recently diluted outstanding shares by almost 20% (75 million shares outstanding + 17 million share stock offering at $35/share).(3)

The JOE share price has been holding up because of institutional buying. Of the 92m now outstanding (nearly all of the shares are floating), 33m+ are held by three institutional investors before the share offering. It could be more now.

If you use the institutional holdings info on Yahoo! Finance, you see 80% of the float prior to the offering is held by the top ten institutional investors. This makes the stock price sticky, and subject to short squeezes. At the same time, the outlook generating cash from holdings is getting dimmer. This dilutes the value of the landing holdings and should impair the market value of the stock.

IMHO, close your shorts at $22 /share.

1 -2008 Q1 JOE earnings call
2 -Yahoo! Finance
3 - St Joe Press Release - http://biz.yahoo.com/bw/080227/20080227005634.html?.v=1

For other investment recommendations like this, visit my blog.

http://lockstep-investing.blogspot.com

Any feedback appreciated.

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