Alexander and Baldwin (AXB) Looks Compelling Here

I didn’t think I’d ever get another shot at A&B shares below $35, let alone in the low $20’s. But the unthinkable has happened this year in many areas of the market, and I’m pleased to find “bargains” (that’s a dangerous word for value investors) galore these days.

Honolulu based Alexander and Baldwin (AXB), books the majority of its revenue, ($1 bln out of $1.7bln in 2007) by providing ocean transport services between the US West Coast, Hawaii, and other Pacific destinations through its Matson Navigation subsidiary. Matson happens to be the primary carrier between the US and Hawaii, typically not a bad little business. However, the fuel required to operate Matson’s fleet of containerships and barges is of massive proportions; during 2007, the company burned 2.3 million barrels, the equivalent of 1/10 of one days US consumption. Matson paid between $41 and $87 per barrel during 2007, and the threat of sustained $140+ oil this past summer seemed potentially disastrous for the company’s shipping business. Little did we know at that time that oil prices were the least of our worries, as world economies sank into recession. Since September, A&B’s shares have been cut in half, and it had nothing to do with oil.

What is perhaps more interesting about Alexander and Baldwin is the company’s real estate. The company owns a portfolio of approximately 1.4 million square feet of leasable space in Hawaii, plus another 5.2 million square feet in the continental US. Add to this 89,000 acres (nearly 12 square miles) of land in Hawaii (carried on the books at next to nothing), some of which is currently under residential development, and you’ve got a potentially very interesting real estate play. Perhaps that portfolio is not as valuable as it was a year ago, but longer term, I believe its value will be recognized.

Recent financial results weren’t bad, all things considered. Third quarter sales rose 5.9%, although net income fell 25% to $36.8 million, as container shipping volume fell 5%. Still, that’s an 8% net profit margin.

Currently trading at about 7 times earnings, just .5 times sales, and about .8 times book value, A&B currently yields a fat 5.1%. Management increased the dividend 8.6% this past April, and I, for one, am happy to collect it while we all wait for the sun to rise again.

Jonathan M. Heller, CFA

Long Alexander and Baldwin