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| INSIDERS - SEPTEMBER 2003
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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. WCI×s developments are in the more densely populated southern
part of the state. WCI builds traditional communities and high-rise
condos. 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.
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