Trump's Win Should Limit Risk For Prison Stocks, Which Still Have Room To Run

“Following Donald Trump's presidential victory, we now see materially less risk to contract renewals and the overall private prison REIT business models,” Cannacord Genuity’s Ryan Meliker said in a report. He added that the current estimates for both The GEO Group Inc GEO and Corecivic Inc CXW may prove conservative.

Meliker maintained a Buy rating and a price target of $35 for GEO Group and a Hold rating and a price target of $22 for Corecivic.

Upside Remains

While GEO Group has limited exposure to sentencing reform in California, Corecivic faces a greater risk since it owns two facilities that house out-of-state prisoners. Meliker added that the passage of Proposition 57 is yet to yield any significant effects on gross California and out-of-state populations.

Trump’s victory is a positive for every federal jurisdiction and a new attorney general may reverse the current plan to cancel BOP [Federal Bureau of Prisons] contracts upon renewal, the analyst mentioned. He stated that there seemed to be upside to both stocks, despite the recent rally in prison shares.

The analysts noted, however, that there was some near-term downside for Corecivic’s shares owing to its greater EBITDA exposure to California and a pending dividend cut.

“We believe volatility should begin to fade, as the major headlines and political environment have materialized and offer more clarity.”

Last Thursday, the Department of Homeland Security Advisory Council said the U.S. government will continue to use facilities run by private prison companies such as Corecivic and GEO Group. The council specifically mentioned private prisons in its recommendations of how the department should deal with immigration-related detention.