We have recently upgraded our recommendation for The St. Joe Company (JOE), a publicly held real estate company, from ‘Neutral’ to ‘Outperform’ as we anticipate it to perform well above the broader market.
St. Joe is the largest private landowner in Northwest Florida, and is one of the largest real estate developers of the region. The company has significantly reduced its present debt burden through stringent cost-cutting measures and huge reduction in operating expenses. The elimination of debt greatly reduces the risk to shareholders, giving the company the flexibility to weather any possible downturn in residential real estate.
Earlier, St. Joe had developed the Northwest Florida Beaches International Airport, which was opened to the general public in late 2010. The airport 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.
Furthermore, St. Joe has currently invested excess cash in government-only money market mutual funds and short-term U.S. treasury investments (which are highly liquid resources), with the intent to make such funds readily available for operating expenses and strategic long-term investment purposes. In addition, the company presently has $125 million available under its revolving credit facilities that provides it with adequate liquidity to satisfy its near term working capital needs and capital expenditures.
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, the company is under severe stress to maintain profitability.
St. Joe presently retains a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating. One of its competitors Rayonier Inc. (RYN) also has an ‘Outperform’ recommendation and a Zacks #1 Rank.
ST JOE CO (JOE): Free Stock Analysis Report
Be the first to comment