With the maritime shipping industry still navigating stormy waters, investors should not be quick to dismiss the entire industry. Doing so means treating Alexander and Baldwin (NYSE:ALEX) as one of the ordinary shipping stocks. However as one peels back the layers of this business, the last thing that comes to mind is ordinary.
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A Tale of Two Industries
Alexander and Baldwin is a business that operates in two industries that may arguably be the two most severely affected by the global recession: transportation and real estate. While that may be the case today, a closer look reveals a quality business with some extraordinarily valuable assets. In fact, ALEX managed to end 2009 with revenue of $1.4 billion and operating profit of $120 million generated from $2.38 billion in assets. This impressive result in one of the worst years in economic history is, ironically, due to the fact that ALEX benefits from both real estate and transportation. And the company's real estate is some of the most beautiful and prized on Earth. (For more, see Introduction To Fundamental Analysis)
ALEX is the 4th largest landholder in Hawaii with over 88,000 acres. The company develops upscale residential and commercial properties on the islands. Indeed, Hawaiian real estate is recovering from a deep decline, but we're talking about Hawaii not Detroit. In addition to development, ALEX has an agricultural division in Hawaii that produces the world renowned Maui and Kauai Coffee brands. In fact, nearly 60,000 acres, or 75%, of the company's Hawaiian land is devoted to agriculture, which in the long run has much stronger fundamentals than real estate at this moment. In addition, ALEX also owns prime commercial real estate on the mainland in places like California and Texas. (For more, see Add Some Real Estate To Your Portfolio)
ALEX is not just any shipping company. Rather, its the leading Jones Act container shipping company on the West Coast. The Jones Act is a US shipping law that demands that all US based shipping lanes be run by US built ships and US crew. In effect, this gives companies like ALEX protected access to its shipping routes. The only other two publicly traded names that have this distinction are Horizon Lines (NYSE:HRZ) and Trailer Bridge (NASDAQ:TRBR). Traditional maritime shipping companies like Excel Maritime (NYSE:EXM) and DryShips (NASDAQ:DRYS) can not ship goods directly between American routes.
Beyond the P/E
At 22 times forward earnings, ALEX is not bargain material. However, at the current share price of $34, the stock is at the same price it was nearly six years ago while assets have grown by over $620 million. Today, ALEX trades at 1.3 times book value but that is valuing many of its Hawaiian acres at a cost basis of $150 an acre. The company's debt to total capitalization ratio of 30% is far superior than that of Horizon Lines which has over $500 million in debt against a market cap of $155 million. Yet HRZ trades at 1.5 times book value.
ALEX is a company with irreplaceable assets and businesses that will be around decade from now. It's a name worth watching very closely.
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