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Subject:  Going beyond $5K/acre Date:  7/24/2007  12:38 PM
Author:  realistTheorist Number:  136 of 140

For an analyst, JOE is like an interesting puzzle. It's strengths are so different from other companies, that typical metrics do not apply. An analyst has the intellectual challenge of creating the right metric. How to figure it out, when it's in a class of its own?

JOE's core strength is it's vast land-holdings. This is even more so after they announced that they want to have less role in home-building, and -- instead -- focus on developing land for others to build. In evaluating JOE, their current earnings, P/E and Return on Assets are not so relevant. Now, pretty much the only important question is: how valuable is their land?

The broadest metric one might devise would be to calculate their market capitalization per acre. Today (@ $41.60/share) the market cap is about $3 billion. The number of acres they hold (at least the figure I last read) is 800,000 acres. That works out to under $4,000 market cap/acre.

Of course, if one were to buy the company for its current market cap, one would own the land but one would also assume the debt (over $600 long-term debt, or about $1 billion total liabilities) and one would own the cash and receivables (a small amount, under $100 million). If we add in roughly $1 billion, we go from $3 billion market cap, to about $4 billion "enterprise value". Using this number, we get about $5,000 Enterprise value/acre

Such a number includes such a diverse holding of land, that one cannot compare it to any specific number. It includes land that would sell for many times that per acre, and it includes land that the company might decide is wise to "give away" for some relatively minor benefit. So, while the broad $5K/acre number can act as a "sanity check" and give some notion of value, it in no way gives enough. If we assume one type of land-mix, we might think $10k/acre sounds reasonable, if we assume another, we might think $2K is reasonable. So, we'd have to say that the stock seems reasonable from half it current price to twice its current price -- which is as good as not making a valuation at all.

One more point: the land but be valued assuming that JOE's management will remain its "stewards". Someone trying to buy the whole company might ask: "what can I do with this land? what value can I unlock?" An outside passive investor has to ask: "what value can I expect JOE's management to unlock?"

So, here's the summarizing question: how does one get a more detailed understanding of the value of JOE's land holdings?

Any ideas would be welcome.
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