According to an article on Barron.com, David Einhorn presented a very bearish case against The St. Joe Company this morning at the Value Investing Congress. Mr. Einhorn is President of Greenlight Capital and one of the most prominent “super investors” in the value investing community. He is most well known for his early warnings forecasting the demise of Lehman Brothers. In the case of St. Joe, Mr. Einhorn is taking a position directly opposite to many other prominent value investors, most notably Bruce Berkowitz who controls 29 percent of St. Joe shares through The Fairholme Fund.
Beautiful Land or Dreary Acreage?
St. Joe is the largest private landowner in Florida and owns 577,000 acres of land in Northwest Florida according to the company’s latest 10-K report. According to Mr. Berkowitz, St. Joe’s land is very attractive but has been left undeveloped for years due to a lack of good transportation options for those who may want to own second homes in the region. The recent opening of a new international airport built on land donated by St. Joe is supposed to serve as a catalyst for tourism and vacation housing. While the land holdings are within close proximity of the Gulf Coast, it appears that the company escaped major direct impact from the Deepwater Horizon oil spill, although St. Joe has filed lawsuits alleging related economic damages including a claim against Transocean filed on October 12.
Mr. Einhorn cast doubt on the quality of St. Joe’s land and displayed several slides showing “dreary” looking acreage around the airport. He also went into some detail regarding individual developments that have not been built out according to previous plans and even claimed that one development is “next-door to a sewage facility”. The bearish thesis seems to rest on the assumption that St. Joe has overstated the value of its remaining land holdings. With the best acreage sold during the real estate boom, Mr. Einhorn claims that only $7 to $10 per share of value remains. St. Joe shares are currently down nearly 10 percent for the day at $22.16 due to reaction to Mr. Einhorn’s presentation.
Einhorn vs. Berkowitz
Mr. Einhorn was asked about Mr. Berkowitz’s ownership of St. Joe and said that he reached out to debate the stock with him but is still waiting for a response. The video below from May 2009 features Mr. Berkowitz presenting the bullish case for St. Joe. According to more recent comments (as well as his continued ownership), it appears that his views remain basically unchanged:
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Lesson for Investors: Do Your Own Work…
Many investors closely monitor the holdings of well regarded managers when searching for investment candidates. This practice makes a great deal of sense as part of an idea sourcing strategy, but it is never a good idea to simply follow a well regarded investor into a stock. As we can see from the case of St. Joe, well regarded value investors will excellent track records can look at the same set of facts and come to completely opposite conclusions. We don’t know who is correct about St. Joe, but it is clear that both Mr. Berkowitz and Mr. Einhorn cannot be correct regarding the company’s prospects.
We have no position regarding whether the bullish or bearish thesis for St. Joe makes more sense based on reading the company’s financial data. One of the reasons is that St. Joe may be one situation where the company cannot be evaluated properly without actually looking at the land in question directly. Investors purchasing St. Joe shares are actually buying acreage, and clearly the beauty (or lack thereof) of this land is in the eye of the beholder. The current controversy makes it even more interesting to consider inspecting the land directly.
Update – October 13, 2010 7:30 pm: David Einhorn’s presentation is now available online:
Disclosure: No position in The St. Joe Company.