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

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.