St. Joe Co. Battens Down Hatches

We are still concerned about the massive slowdown in St. Joe Co.'s (JOE - Analyst Report) residential business and JOE’s ability to generate operating cash flow in a tough environment for residential developers. JOE continues to reduce headcounts and cap ex spending in response to a rapidly deteriorating residential Florida real estate market. There are no signs that the housing situation will get better in the next six months, and we think the worst is yet to come.

The company has paid off most of its debt, a prudent move in a declining economic environment. In addition, JOE has a strong development pipeline with multiple projects that will come on line in the next couple of years. When residential markets rebound, JOE will be well-positioned with a diverse array of projects at various price points.

The company is currently valued at 43x our recently raised 2008 EPS estimates, well above peer group averages. We expect operations for the majority of 2008 to be disappointing, although we rate the shares a long-term Hold due to the company’s extensive land holdings in a state that continues to be among the leaders in job and population growth. We are setting our 6 month price target at 45x 2007 projected EBITDA or $36.00 per share.

Read the full analyst report on JOE