St. Joe Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

Editor's Note: St. Joe fell an additional 12% in intraday trading on Thursday.

What: St. Joe (NYSE: JOE  ) stock fell 10% in intraday trading after famous investor David Einhorn said the real estate development company needed to write down assets.

So What: Einhorn gained fame betting against Lehman Brothers, and when he talks, the market listens. Einhorn is short the stock, so he definitely has a bias in his statements about the company. But he has often been right in the past.

Now What: David Einhorn is a big name in the hedge fund world and is making a big bet that St. Joe eventually will have to write down assets. Pressure from activist investors can bring actions from management, so watch St. Joe's reaction in coming days as investors start asking more questions. Do your homework before making a bet in this stock, both long or short.

Interested in more info on St. Joe? Add it to your watchlist  by clicking here.

Fool contributor Travis Hoium does not have a position in any company mentioned. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool has a disclosure policy.


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  • Report this Comment On October 14, 2010, at 3:03 PM, gakushi wrote:

    After reading Einhorn’s presentation, I have a couple of points to make.

    A) What Einhorn is implicitly telling us how much JOE is worth?

    The presentation is focused on total acreage of 6,950 (= 4170 (RiverTown) + 762 (SummerCamp) + 2020 (WindMark) see P106). On P122, the total what-we-can-see value is 38.7M. If we take 38.7M and divided it by the total acreage of 6952 we get $5566 per acreage.

    BTW, Einhorn only included WindMark II on P122. This is because he used the number from P112. BTW WindMark II is only about half of the total WindMark, see P104. And the the source of P40,67,71, & 89 are from 10-K not from 10-Q.

    According to P30, that JOE has 536,000 of Timberland or Rural Land. However, it happens to be that most of them are within 15miles from the beach. If you take a look at P6 of the latest investor Presentation http://files.shareholder.com/downloads/JOE/1037019379x0x3569... you will also see miles of beaches and water front land are still in JOEs holding. Want to know how much a piece of beachfront can be sold at? See P73 of Einhorn’s presentation.

    Let’s say we use the $5566 per acreage (derived from Einhorn’s total what-we-can-see number on P122) times it by 536,000, we get 2.98Billion. Divide 2.98Billion by 92Million shares, we get $32.3 per share.

    In conclusion, Even using Einhorn’s worse numbers we get a per share price of JOE at $32.3

    B) About Impairment.

    Let’s say I agree with Einhorn that we should write down say $242Million (= 280M – 38M) according to P122. In this case, shouldn’t we also update the value of the rest of the land holdings on JOE’s book?

    Let’s say we again use the $5566 per acreage (derived from Einhorn’s total what-we-can-see number on P122) times it by 536,000, we get 2.98Billion which is more than three times higher then the current book value.

    In addition, impairment is just an accounting technique which does not affect JOE cash flow wise.

    C) Burning through cash?

    JOE is not burning through cash. In fact, JOE’s free cash flows for TTM, 09, 08 are $18M, $48M, $46M respectively. As Bruce Berkowitz put it: “You can only spend the cash.”

    In fact, according to Morningstar, “St. Joe reduced its employee base by nearly 90% since real estate's peak in late 2005, exiting noncore businesses in hospitality services, homebuilding, construction, and development. The firm has also shrunk its regional footprint, closing or selling operations in ancillary downstate areas like Tampa and Orlando. St. Joe now boasts a lean staff of just 140 and an intense singular focus on developing its major regional land holdings, a major positive development compared to its prior, more diverse endeavors.”

    C) Conclusion

    Over all I don’t think Einhorn did a complete job on evaluating the company. After - as he claimed - looking into the matter for the pass six years, one would expect he came up with a detailed, complete section by section evaluation of JOE’s holding. In stead he just focused on 1.2% (= (4170 (RiverTown) + 762 (SummerCamp) + 2020 (WindMark) )/ 577,000 ) of JOE’s land. I am wondering if Einhorn is not as intelligent as we think he is or Einhorn intended for something else.

    Good lucking in investing!

    gigakushi@yahoo.com

  • Report this Comment On October 15, 2010, at 6:21 PM, jbryan09 wrote:

    Ummm . . . gakushi: All "536,000 acres" are NOT located on the beach and therefore should not be valued as "beachfront" at $5,566 per acre.

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