Private Prison Stocks Take Big Hit As Biden Closes In On Victory

Private prison stocks Corecivic Inc CXW and The GEO Group Inc GEO took a big hit on Wednesday and Thursday as Democrat Joe Biden's victory in the U.S. presidential election looked increasingly likely. 

Prison stocks were some of the biggest winners following Donald Trump’s election victory back in 2016, but investors believe a Biden presidency could put the future of the industry at risk.

Biden On Prisons: A Biden administration pledges to “stop corporations from profiteering off of incarceration,” according to the candidate's campaign website. 

“Biden will end the federal government’s use of private prisons, building off an Obama-Biden Administration’s policy rescinded by the Trump Administration,”  the website said. 

Throughout the campaign, executives from CoreCivic and GEO donated large sums of money to Trump. In 2019, both companies made roughly $1.3 billion each due to contracts with Immigration and Customs Enforcement, accounting for about one-third of the companies' revenue. 

Long-Term Contracts: Both companies recently signed long-term government contracts tied to several detention centers in Texas and California.

The Trump administration even sued the state of California over its ban on private prisons.

In addition to his plan to end government use of private prisons, Biden supports eliminating cash bail, a system that Trump supports.

Benzinga’s Take: Prison stocks will likely remain under pressure in the near term, at least until the election results are official and it becomes clear what, if anything, Trump or Biden will actually do to reform prisons over the next four years.

The long-term contracts CoreCivic and GEO recently locked in may be difficult for Biden to unwind, creating some breathing room for the companies while they plan their next move or hope for a more supportive candidate in 2024.

In the meantime, prison stock investors can breathe a sigh of relief that they seem to have avoided a worst-case scenario in which Biden takes the White House and Democrats control both houses of Congress.

CXW, GEO Price Action: Corecivic shares were down 2.63% at $6.29 at last check Thursday, while Geo Group shares were 4.93% lower at $8.30.