Chronicling Einhorn's Multi-Year Vendetta With St. Joe, And Some Relative Performance Perspectives

Tyler Durden's picture

Much noise has been made about David Einhorn's presentation of "more than a hundred" pages on St. Joe at the Value Investor Conference from earlier this week. What few however seem to know, is that this is merely round two in what is at least a three year ongoing vendetta between the Greenlighter and the Florida real estate company. On May 23, 2007 Einhorn gave what is essentially an identical presentation to the Ira Sohn conference held at the Lincoln Center. In other words, to say that this is a new idea for the hedge fund manager is certainly a stretch. Below are the full notes that Einhorn presented back then. Contrast these to today (you can read the full presentation at Market Folly). In essence the only thing that has changed is the price target: in 2007 Einhorn saw a fair value of JOE of $15, when the stock was $53. This time, when the stock was $25, he values it anywhere between $0 and $10. Could he eventually be proven right? Who knows: after all that's why he gets paid the big bucks, and has had some great calls in the past. However, his long matched calls at the 2007 Ira Sohn conference are certainly not among them. At the time, Einhorn was a fan of Helix Energy Solutions (HLX), back when the stock was $40, and now is $10, and Natixis (KN.FP) which was €13 and now is €4, both underperforming his short call materially in the past 3.5 years. A long HLX (or KN.fp)/short JOE pair trade has certainly cost anyone who put it on a pretty penny. So, as always, buyer beware. Just because a star hedge fund manager likes or does not like something, does not make it a slam dunk.

Full notes from the 2007 Ira Sohn conference of Einhorn's short St. Joe presentation, via BTIG:

Short –JOE- The St. Joe Company
Company has primarily been in the business of development and sale of oceanfront properties in the Florida Panhandle.

  • Sales to speculators led to record sales in 2005.
  • Speculators have now turned into sellers. Most of St. Joes land holdings are timberland & swamp. 
  • Poverty in the area does not help the company’s situation. The average income in the area is 30% below the national average.
  • Great hope for new airport in 2010 but current airport underutilized. Comparable airports built (Jacksonville) have not had significant impacts upon that area.
  • Lots of management turnover.
  • Sell side models value stock at current price.
  • peak ROE was 23% last year it was 9%.
  • At current prices investors are paying over 8x book value for land.

Einhorn performed a discounted cash flow analysis as if they developed all properties in 10 years.
Discounted at 10% leaves the predicts the stock valued at $15
The company has two remaining businesses to service the $400 million in debt.

  • Commercial real estate development.
  • Sale of undeveloped acreage, this has been the principal source of revenue.

This is how the stock performed immediately following the Ira Sohn presentation:

And here are Einhorn's thoughts on Helix from the same conference:

Long- HLX-Helix Energy Solutions. 

He believes HLX has suffered from investor disappointment following its acquisition of Remington Oil & Gas.  The company’s original investor base gave up. The acquisition originally appeared to be a bust after the first to Remington holes drilled were dry. Since then they have hit 14 successful holes in 2006-2007.

  • 40% additional proved reserves  to 600bcf.
  • Estimated $1Billion in EBITDA-for 2007, approximately$3.50 per share.
  • Estimated $1.4Billion in EBITDA-for 2008, approximately $5.00 per share.
  • Estimated $7.00 per share earnings for 2009.
  • While high the company’s $1billion in capex is leading to a solid IRR.
  • Possible but not necessary share repurchase.
  • No commodity hedging.

Here is how a Long HLX, Short Joe pair trade has performed.


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bugs_'s picture

Looks like someone wants that undeveloped land.

Cvillian's picture

I recall sitting in a meeting with David around the time he was trying to get a board seat on this little company called New Century Financial. That went to 0. Of course, he is quite successful and it's fairly short sighted on my part to point out singular losers...

harveywalbinger's picture

Ever consider that taking NCF to 0 was Einhorn's intent?  One of Einhorn's plays is to gain a seat on a company BOD (or feign interest), as this is a diversion from the fact that he's actually doing his damnedest to steer the company off a cliff (shorting the bejeezus out of it)...

I suspect that what you refer to as a "loser" was in all actuality very much a winner... at least for David Einhorn.

AccreditedEYE's picture

He certainly isn't Berkowitz's friend anymore either... LOL. Brucie probably had a migraine at the end of today with financials getting kicked in the nuts.

Mercury's picture

In essence the only thing that has changed is the price target: in 2007 Einhorn saw a fair value of JOE of $15, when the stock was $53. This time, when the stock was $25, he values it anywhere between $0 and $10. Could he eventually be proven right?

Sounds like he's already making a killing.  'Right' enough for me.

putbuyer's picture

The own a million acres and alot of it waterfront. If they can ride it out, they can score on the next RE bubble. Based on MKT CAP that 2K per acre. Plus they have the timber business.

nmewn's picture

I've been looking at it also...I think it's closer to half a million acres they own now.

As much as I dislike Einhorn as the media whore he is, he may be on to something here. Most of their land is inland and they have sold off quite a bit of it over the last decade or so...still...they don't make it anymore...but without the div there's not much reason for an "investor" to buy the stock at this level unless your looking for a quick scalp (and it snaps back before rolling over again).

This is less than inspiring also...LOL.

It would be a real crap shoot...but the odds are against the stock...IMO...the land will be used somehow...timber, hunt leases, developed, whatever, eventually...but the stock equity is being drained off right now as the insider sales and stock option awards show.

My two cents.


Quantum Nucleonics's picture

Kinda hard to see how a company that owns a ton of land with no debt could go to zero.  It's basically an exercise in land valuation.  Book value is $10, and much of the half million acres of land they own is held at absurdly low book values - most of it was acquired in the 1930's and '40's

ZeroPower's picture

Land is always kept at historical values. I doubt Einhorn overlooked such a common accounting concept?

AccreditedEYE's picture

hmmm... cost basis will be taking a round trip. LMAO!!

Thunder Dome's picture

Einhorn sounded the battle cry against MCO a few month's back.  The stock tanked hard for a few days then rallied 50%.

daniel's picture

Really this is a great post from an expert and thank you very much for sharing this valuable information with us.
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