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St Joe Vs WCI

Wednesday, September 03, 2003


IN THIS SECTION:
Executive Lifestyles ¦ Trendsetters ¦ Players ¦ Insiders ¦ Around The State: Southeast ¦ Around The State: Southeast ¦ Around The State: Southwest ¦ Around The State: Central ¦ Around The State: Northeast ¦ Around The State: Northwest

INSIDERS - SEPTEMBER 2003 ISSUE
Home Building: The Home Front
Both St. Joe Co. and WCI present intriguing options for investors.

By John Finotti

For investors looking to profit from Florida×s flourishing residential real estate market, there are two interesting options: St. Joe Co. and WCI Communities. The two companies share a few similarities and many differences.

Both companies concentrate their home-building efforts in Florida. Each targets well-off retirees and the growing number of empty-nester Baby Boomers — the lifeblood of high-end housing in Florida. The two companies have assets of between $1.2 billion and $1.5 billion. Shares in both companies have risen in recent months, and analysts who follow the companies expect that trend to continue.

But that×s basically where the similarities end.

St. Joe is Florida×s largest private landowner with some 900,000 acres. The company×s primary focus is the development of single-family home communities in the northern part of the state, especially in the Panhandle, where the company has most of its holdings.

WCI×s developments are in the more densely populated southern part of the state. WCI builds traditional communities and high-rise condos.

Following the companies
Rick Murray, a real estate analyst at Raymond James & Associates in St. Petersburg, likes St. Joe. He notes a key strength: The low cost basis of its land, which was purchased decades ago. St. Joe×s strategy of developing high-end communities along the Gulf Coast with resort-rich amenities is creating value.

Just as encouraging for Murray is how St. Joe has gone about its land sales. Rather than pay the huge capital gains on the sale of land, St. Joe has deferred the tax bill by using the proceeds to acquire commercial office buildings around the state. St Joe Chairman and CEO Peter Rummell has done a wonderful job, Murray says, of creating a long-term vision and increasing the value of the company.

Trading near its 52-week high of $32 in recent months, St. Joe stock carries a steep price-to-earnings ratio of about 27.

At BB&T Capital Markets in Richmond, Va., real estate analyst Jack Kasprzak also likes Florida×s prospects. •The demographic trends in the U.S. — the growing empty-nesters and active adults — favor Florida,ö he says. He×s high on WCI, which caters to those groups. In addition, the company has a nine-year supply of land on Florida×s coast, he says.

After going public last year, WCI stock hit a high of $24.14. But before the year ended, shares plummeted to $7.50 when the company had to restate earnings because of a foul-up in certain condo documents. WCI shares have since recovered to around $18. At that price, WCI is selling for between eight and nine times estimated earnings for this year, Kasprzak says. He rates the stock a •strong buyö and has a 12-month price target of $26.

While WCI×s shares are trading at an enticingly cheap level, WCI does carry more risk. The company×s debt, at $730 million, is twice as much as St. Joe×s. Moreover, cash flow from operations last year was negative $109 million vs. St. Joe×s positive cash flow of $37 million.

In the end, of course, home buyers will determine the long-term success of St. Joe and WCI. If Boomers make the trek to Florida, both will be waiting for them.

ST. JOE vs. WCI
Both Florida home builders stand to gain from the influx
of wealthy Boomers and retirees.
St. Joe
WCI
CEO Peter Rummell Al Hoffman
Age 57 69
Shares owned 2,732,938 5,238,096
2002 compensation $2,051,491 $2,996,245
2002 revenue $646.4 million $1.2 billion
2002 profit $174.4 million $104.8 million
Earnings per share $2.14 $2.37
P/E ratio 27.61 9.71
Market cap $2.47 billion $800 million
Assets $1.2 billion $1.5 billion
Equity $480 million $663 million
Debt $321 million $730 million
Cash flow $37 million (-$109 million)
Big name director Walter Revell
Ex-Florida DOT chief
F. Philip Handy
Board of Ed. Chairman

Copyright Ā 2003. Trend Magazines, Inc. All Rights Reserved.

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