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Bruce Berkowitz Comments on The St. Joe Company After Oil Spill

June 24, 2010 | About:
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The BP oil spill accident in the gulf of the Mexico has many victims, from tour guides to shrimpers, from cancelled vacationers and idled rig workers. Investors in the companies involved (BP, Transocean, Anardako, etc) have also seen their fortune turned sour in the past two months. BP stock prices have been cut more than a half and the dividend is suspended – but if you are an investor of a company responsible for the accident, what else do you expect?

Certainly not every company that has seen their stocks chopped is guilty of any wrong-doing. One of them is The St. Joe Company (JOE). After it reached a peak of $37 per share at the end of April, the company’s stock price retreated to about $22 per share, a drop of about 40% after the oil spill. The drop is not quite as bad as that of BP shares, but then St. Joe is not on the hook of putting up $20 billion as a starter for cleaning, compensation, fines, and penalties caused by the oil spill.

As a matter of fact, the company is not in Oil & Gas business whatsoever. The company operates a few resorts and clubs and sells timbers that grow on the land, but the revenue from these sources ($29.7 million from resort and $26.6 million from timber for 2009) is hardly the whole story of the company. Most of its revenue in 2009 came from real estate sales ($78.8 million), but even those activities do not speak for the full potential of the company. And frankly all the revenue combined ($138 million in 2009) can hardly justify a company that has a market cap of about newly-discounted $2 billion, not mentioning that the company ran a loss of $130 million in 2009.

The company’s primary asset and value resides with the 577,000 acres of largely undeveloped land situated in the Florida panhandle, 70% of which are within 15 miles from the beach. At today’s market close price of about $22 per share, investors are paying about $3,500 for each acre of the company’s land, a real bargain according to Bruce Berkowitz who controls about 26.8 million shares of the company’s 92 million shares, or 28.9% or the total. The stock accounts for 8.92% of his total equity portfolio as of March 31, 2010.

Such heavy involvement invites a question to Berkowitz during the Value Investing Congress that took place in early May, according to the notes taken by GuruFocus columnist Ben Claremon. Here is:
Question: Tell us more about St. Joe since you own almost 30%.

He believes that they bought the stock for swamp land prices. There is a misperception out there. Smart people were short this but if you go there you see how great the land is there. A new Southwest hub is about to be opened there. The infrastructure is good. Tax dollars were at work and seemed to have been well spent. This land represents the last open place left in Florida, a state with no state taxes. For the 1st time you are going to be able to land within 10 miles of the Gulf Coast, even though the project is 15 years late. The 10,000 foot runway means that you can land anything there. The BP oil spill may have been killing the stock but the necessary cleanup is going to be like a full employment act for North Florida.


As Berkowitz referred, on May 23, Southwest commenced service to Northewest Florida Airport at Panama Beach City, Florida. To build the airport, St. Joe Company donated 4,000 acres of land so that the airport can be built within its 75,000-acre West Bay Sector Plan, a large mixed-use master-planed development.

Investors who sold the company’s stock down probably take the company as a hotel and resort operator. Even that cannot justify the punishment the company’s stock price has received. For one thing, the actual oil slick in the gulf has not reached the beaches that the company owns yet, at least for now. There were some tar balls reached The St. Joe Company beaches at the WaterColor Resort and WaterSound Beach and company has contracted a third party to remove the tar balls during the off-peak periods. The beaches are still open and no health or swimming advisories have been issued, and beachgoers are continuing to enjoy the beach, according to new release on the company’s website. The company also expects the cost of cleaning the beach to be included in the claim that the company will file with BP.

Watch this Morningstar to gain further insight in investing in the stock:



And read a recent Barron’s article that echoes comments made by Bruce Berkowitz.


Rating: 3.6/5 (16 votes)

Comments

bertens
Bertens - 3 years ago
I agree, that makes a whole lot more sense than buying BP. Your downside is protected and there could be considerable upside over the years. Also a good inflation play.
sims73
Sims73 - 3 years ago
does St Joe leadership team have experience in such large scale real estate development?
jhodges72
Jhodges72 - 3 years ago
The last time a St. Joe buy recommendation was given on this site I noted that the business wasn't valued anywhere close to what the author said and gave my sell recommendation. It's been a few months later and I just felt like saying "I told you so". This stock has declined for no other reason other than it's simply not worth as much as the over optimistic analysts speculate. I've pulled the assessment records of every piece of property they own. They're easily obtainable freely online. I suggest the author does the same. His perspective would change dramatically. The county assessor doesn't come close to valuing the land at $3500 per acre. Not even half that. Poor article distributed a second time. I told you so.
Rommel Acosta
Rommel Acosta - 3 years ago
Jhodges72, what does the county assessor say the value of the land is?
jhodges72
Jhodges72 - 3 years ago
Rommel, look it up for yourself. All that information is freely available online. Simply input your search query into Google.com. You need to know a few basic things before you do however. 1) you'll need to know where there land is. You'll find that information in their 10-K. 2) you'll need to know which county the land is in. Once you find those two questions, it will be extremely easy for you to find the information on your own. That is how I stay informed. Matter of fact, the LAST document I look at, regarding analysis of a particular business, is their balance sheet. 99.99% of the time its not even remotely close to giving you accurate information.
Rommel Acosta
Rommel Acosta - 3 years ago
Thanks Jhodges. Out of curiosity, what is the nature of your work? Seems you've been doing this sort of thing for number of years.
jrerickson003
Jrerickson003 - 3 years ago
The county's tax assessed value can have very little to do with the market value of the land. I am a commercial lender and deal with tax assessed values often. They can significantly understate the value of undeveloped property, because its assessing the value at its current use (farmland). When/if the property is developed, the value of the land can increase 100 fold. I do not think your argument is valid Jhodges. It sounds like you've done significant research, but I think you have misinterpreted the information.

jhodges72
Jhodges72 - 3 years ago
jrerickson003,

It's true that the county assessors information is conservative, which is a plus for me since I am conservative as well, but it isn't true that the information lacks integrity. We could assume all day long what the property value "would be" if it had various buildings established. For me, that is a meritless argument. Today, as of right now, it is what it is and should be valued based on nothing other than what it currently is. In that regard, the assessor's records are sufficient to come to a rational conclusion. Unless you know and trust management on a personal level - there's no way for you to know how the development process will pan out or to even assume one way or the other. That is called speculating - a style that doesn't interest me at all. Paying $0.50 for a $1 worth of assets has nothing to do with assumptions and everything to do with what is relevant today.

Rommel,

I'm a full time securities analyst.
dlight
Dlight - 3 years ago
I've been in the pan handle. Unless you're right on the gulf the land is pretty much worthless.
Rommel Acosta
Rommel Acosta - 3 years ago
Southwest commenced service to Northewest Florida Airport at Panama Beach City, Florida. To build the airport, St. Joe Company donated 4,000 acres of land so that the airport can be built within its 75,000-acre West Bay Sector Plan, a large mixed-use master-planed development.Jrerickson may have a point since I believe the intent is to develop the land. Has anyone followed Berkowitz long enough to see his expertise in real estate?

Dlight, what makes you say the land is worthless?

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