The private prison model has attracted considerable scrutiny over the past decade. That has led to a significant shift in policy that poses a big threat to the profitability of this space. This is something investors should take note of going forward.
Back in 2021, United States President Joe Biden drafted an executive order (EO) that directed Attorney General Merrick Garland to abstain from renewing Justice Department contracts with privately operated criminal detention facilities. A recent report from market researcher IBISWorld
CoreCivic (NYSE:CXW) is a Brentwood-based company that owns and operates partnership correctional, detention, and residential re-entry facilities in the United States. Its shares have dropped 16% so far in 2023. The stock is down 28% year over year.
In fiscal 2022, CoreCivic saw total revenues dip marginally to $1.84 billion. However, it delivered net income of $122 million – down from a net loss of $51.8 million in fiscal 2021. Shares of this prison stock currently possess a favourable price-to-earnings ratio of 9.2.
Geo Group (NYSE:GEO) is a Florida-based company that is engaged in the ownership, leasing, and management of secure facilities, re-entry facilities, and processing centers in the United States, Australia, and South Africa. Its shares have plunged 23% in 2023. However, the stock is still up 20% year over year.
The company delivered operating income of $383 million in fiscal 2022 – up from $288 million in the previous year. Meanwhile, net income rose to $171 million compared to $77.2 million in fiscal 2021. EBITDA rose to $553 million over $436 million in the prior year.
This is a precarious time for the private prison industry. However, an Obama-era effort produced similar anxiety for the industry. Private prisons would roar back under the Trump administration. Investors with a stake in this space should watch the 2024 U.S. presidential election closely.
