According to The New York Times, for the first time since 1972 we have seen a reduction in the U.S. prison population instead of an increase. That spells bad news for publicly traded prison stocks like Cornell Companies Inc. (CRN), Corrections Corp. of America (CXW) and Geo Group Inc. (GEO).
And what’s more, that reduction isn’t just a tiny dip — state prisons held 1.4 million people as of January 1, about 6% less than the year before. That’s a substantial drop-off that could signal continued trouble for these corrections companies.
Don’t get me wrong, this drop is good news for public safety advocates, our overtaxed criminal justice system and a host of others. But for investors who always thought publicly held prison companies were low-risk ways to make a bundle off the corrections system, it’s been a rude awakening.
Prison Stock to Sell – Cornell Companies, Inc. (CRN)
Cornell Companies, Inc. (CRN) provides correctional, detention and rehabilitation services that are outsourced by federal, state and local government agencies. Its Abraxas Youth and Family Services division also provides residential, detention, shelter care, and community-based services for juveniles between the ages of 10 and 18. First Analysis Securities recently downgraded the Houston company to “equal weight” from “overweight” in late February after Arizona’s governor indicated it would phase out the use of Cornell’s private out-of-state prison beds for inmates. The loss of the Arizona prisoners which could cut into Cornell’s annual earnings by 35 cents to 45 cents per share. Earnings have already declined for the last three consecutive quarters, so that’s not an inspiring sign for this prison stock. Shares have lagged the market in 2010, down about -4% compared to a +3% gain in the broader market YTD.
Prison Stock to Sell – Corrections Corporation of America (CXW)
Corrections Corporation of America (CXW) owns and operates privatized correctional and detention facilities in the United States. As of December 31, CXW operated 65 prison facilities, including 44 sites that it owned, in 19 states and the District of Columbia. It also owned 2 additional corrections facilities that it leased to third-party operators. with Systemwide, Corrections Corporation of America boasts a total capacity of 87,000 beds.
Though CXW’s fourth-quarter profit beat the Street in early February, the company announced a weak Q1 outlook with estimated earnings of 28 cents to 30 cents a share, compared previous estimates of 33 cents. Shares have been brutalized so far in 2010, losing 17% even while the market has been moving up, and it looks like more bad news is yet to come.
Prison Stock to Sell – Geo Group, Inc. (GEO)
The GEO Group, Inc. (GEO) provides government-outsourced correctional services for prisons, specializing detention and mental health. GEO is a truly global prison stock, with facilities in the United States, Canada, Australia, South Africa, and the United Kingdom. The company also provides consultation and management services relating to the design and construction of new correctional and detention facilities. In mid-February, GEO Group announced its Q4 earnings fell 6%, weighing on shares. Then on March 2, word that the Federal Bureau of Prisons would cancel plans for a GEO facility to house illegal aliens convicted of crimes sent shares down about 8% in one trading day alone. Share are down double-digits year to date.
As of this writing, Louis Navellier did not own any shares of these stocks in personal or client portfolios.