The Real Story: Ugly Kid Joe

The tone of this call was quite different from last quarter's when management said demand was stable in the primary home communities. St. Joe's Seven Shores community, entitled for 686 condominiums ranging in price from the high $700,000s to over $1.5 million, opened for sales last week. Management claimed to have had "great traffic," but no sales were recorded.

Perhaps the one area that looked promising was the commercial real estate business, where the average price per acre climbed 30%, although the company sold only 14 acres compared with 41 the previous year. Additionally, last quarter the company mentioned that two commercial sales had been pushed into 2006. Now, one of them is being moved out even further into 2007.

The company also has been in negotiations to sell its land to large national homebuilders. Management said that these homebuilders have not backed away in light of the challenging real estate environment. If the market stays slow, however, I will be surprised if some of these homebuilders don't begin to delay purchases and projects.

A St. Joe representative could not be reached for comment.

Earnings estimates are naturally coming down on the heels of the report. First Call has not yet updated the new consensus, but several analysts are projecting earnings at the low end (or even below) of the firm's guidance range of $1.40 to $1.85 a share. Ryan Beck's Sheila McGrath estimates St. Joe will earn $1.47 a share in 2006. McGrath rates the stock outperform.

Raymond James' Rick Murray is more negative, with a market perform rating and EPS estimates of $1.35 in 2006 and $1.10 in 2007. Murray's 2007 forecast is almost less than half of the current consensus of $2.16. (Ryan Beck does not have an investment banking relationship with St. Joe. Raymond James co-managed a stock offering for the company in 2003.)

As I mentioned in my earlier story, St. Joe is trading at a significant premium to the S&P 500. Since 1997, it has traded at a 10% premium on average. Using the midpoint of the new guidance and generously assigning the stock the same 10% premium on forward earnings, the fundamental price target is $31. In recent trading, the stock was up 0.5% at $51.74.

St. Joe Headed for the $30s? There's meaningful support at $48, but risk the stock will go lower still

If you're short, consider taking some off the table at my original price target of $48, as there is meaningful support and the number represents a 61.8% Fibonacci retracement of the rally beginning March 2003 to the all-time high achieved in July 2005. Below that there is some support in the low $40s and then again around $35. The latter figure is not too far away from my fundamental target. Either way, I expect St. Joe shares to eventually make their way to the low-to-mid $30s.

That's a move that even Mr. Greene and teammates couldn't stop.

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