Risk/Reward Remains Balanced at St. Joe - Analyst Blog

On Jun 18, 2014, we issued an updated research report on The St. Joe Company JOE, which is based in WaterSound, FL and engaged in real estate development and sales and has notable interests in the timber industry.

On May 8, St. Joe reported first-quarter 2014 earnings per share of $4.37 per share thanks to the sale of 380,000 acres of its non-strategic timberland and rural land to AgReserves Inc. for about $562 million. The company had incurred a loss of 3 cents per share in the year-ago quarter. The Zacks Consensus Estimate, excluding one-time items, was a loss of 1 cent per share.

However, we are concerned of a decline in revenue in a number of its segments. Though St. Joe's total revenue for the quarter was $594.1 million and it included the impact of the AgReserves sale, excluding that, revenues for first-quarter 2014 came in at $23.2 million, down 13.4% from $26.8 million in the prior-year quarter.

The revenue figure also missed the Zacks Consensus Estimate of $28 million. This was due to a fall in timber sales and a reduction in the number of residential homesites sold, partly dwarfed by a rise in commercial real estate sales.

Nevertheless, St. Joe is currently focused on enhancing resort operations, development of the port at Port St. Joe as well as the active adult residential market, which augur well going forward. Also, the recent sales are a strategic fit and provide the company substantial liquidity, which it can deploy for development needs.

Notably, following the AgReserves sale closing in March, St. Joe accomplished the sale of the RiverTown community on Apr 2, 2014. As a result of this sale, in the second quarter the company expects to report a pretax income of around $26 million.

Over the last 7 days, the Zacks Consensus Estimate remained constant at a loss of 2 cents for 2014 and earnings of 12 cents per share for 2015. The stock now has a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Investors interested in the real estate industry may also consider stocks like Alexander & Baldwin, Inc. ALEX, Altisource Residential Corporation RESI and Mitsubishi Estate Co., Ltd. (MITEY). All these stocks carry a Zacks Rank #2 (Buy).