We have reiterated our Neutral recommendation onThe St. Joe Company (JOE - Analyst Report) , a real estate investment trust (REIT), as we expect the stock to perform in line with the broader market.The company reported a net loss of $0.9 million or 1 cent per share in first quarter 2012.
Based in Jacksonville, Florida, St. Joe is engaged in town, resort, commercial and industrial development in addition to land sales and commercial real estate operations. Over the years, the company has developed successful residential and commercial projects and related infrastructure, which in turn has attracted regional and national businesses to the area that contributed to the regional growth and prosperity. This provides a significant long-term growth opportunity to the company.
The company has significantly reduced its debt through stringent cost-cutting measures and reduction in operating expenses. The elimination of debt greatly reduces the risk to shareholders, giving the company the flexibility to weather any possible downturn in residential real estate.
The opening of the Northwest Florida Beaches International Airport, developed by St Joe, is the first new international airport opened in the U.S. since the 2001 terrorist attack, and is expected to become a major growth driver for the region. The airport greatly increases the future value of its holdings, and provides upside potential for St. Joe.
However, St. Joe has historically generated considerable revenue from rural land sales. Amid a tough macroeconomic environment, potential buyers have struggled to obtain finances for commercial projects, and selling land at attractive prices has become increasingly difficult. Consequently, revenue from rural land sales has virtually dried up, affecting their long-term profitability.
With large exposure to residential real estate business, St. Joe has no near-term growth catalyst and has reported losses for four consecutive quarters in 2009 and 2011. The company is also expected to repeat this dubious feat in 2012 as well. We would avoid investing in the stock for the short-term.
St.Joe currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. One of its competitors, Rayonier Inc (RYN - Analyst Report) holds a Zacks #2 Rank, which translates into a short-term Buy rating.