The St. Joe Company (JOE - Free Report) is making efforts to incubate business on the back of portfolio expansion and rebalancing. However, volatility in segmental revenues is anticipated to impede top-line growth.
This real estate development company’s leasing operations segment has displayed robust growth. Third-quarter 2017 leasing revenues of $2.8 million reflected the 11th consecutive quarter of year-over-year growth. Hence, the company is increasing the size and scope of its leasing portfolio through acquisitions and joint ventures. In fact, since December 2016, the company has increased its leasing portfolio coverage by approximately 73,000 square feet of rentable space.
St. Joe is also making solid progress on the development of additional residential units in WaterSound Origins and Breakfast Point communities to generate long-term dependable revenues from the club and resort operations portfolio. We believe the efforts to fortify these trophy assets will help the company improve its source of steady revenues.
Furthermore, St. Joe is making efforts to rebalance its portfolio and achieve an optimal portfolio mix. Amid these, the company sold three commercial real estate properties for a total of $0.4 million and 66 acres of rural and timber land for $0.7 million in the third quarter.
Also, these non-core sales provide the company with funds to be utilized for development needs. In addition to these, earnings from real estate and timber lines for the past quarters have rendered considerable volatility to St. Joe’s bottom line.
While St. Joe continues to expand its portfolio, the company’s business remains concentrated in Florida, particularly in the Northwest. Hence, any change in the demographics, which might affect projected population growth in this region, including a decline in the migration of baby boomers, could adversely impact the company’s business.
Amid streamlining initiatives, the company’s AgReserves Sale has reduced contributions from the forestry operations and increased variability in operating results. The residential real estate business, which is witnessing a shift in customer mix from retail sales to homebuilder’s sales, adds volatility to the company’s top line.
Finally, the company’s sub-optimal financial structure remains a concern. St. Joe has a debt-to-equity ratio of 0.41, significantly higher than the industry’s average of 0.25. Furthermore, it exited third-quarter 2017 with cash, cash equivalents and investments of $312 million, down from $416.8 million as of Dec 31, 2016.
Year to date, the stock has lost 0.5% as against the industry’s rally of 18.4%.
The stock currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the real estate space include CBRE Group , HFF Inc. (HF - Free Report) and LEG Immobilien AG (LEGIF - Free Report) . All these stocks carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For CBRE Group, the Zacks Consensus Estimate for full-year 2017 earnings estimate moved up to $2.67 in a month’s time. Its share price has surged 36.5% over a six-month period.
The 2017 Zacks Consensus Estimate for HFF Inc moved up to $2.36 in the past month. Its shares have gained 48.4% in six months’ time.
The Zacks Consensus Estimate for current-year earnings of LEG Immobilien moved up to $5.44 over the past month. Its shares have rallied 32.6% in the past six months.
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