Stock Wars: CoreCivic Vs. Geo Group

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector with the goal of determining which company is the better investment.

This week, the duel is between two companies in the private prison space: CoreCivic Inc CXW and The GEO Group Inc GEO, which are contracted by federal and state agencies to operate correctional facilities.

The Case For CoreCivic: This Nashville-based company started in January 1983 as Corrections Corporation of America with three eclectic founders: Thomas W. Beasley, the chairman of Tennessee’s Republican Party; Robert Crants, a real estate executive; and T. Don Hutto, the deputy director of the Virginia Department of Corrections who was also president-elect of the American Correctional Association. The company’s initial backers included the Tennessee Valley Authority, Vanderbilt University Law School and Jack C. Massey, co-founder of the HCA Healthcare Inc HCA.

The company made history in 1983 when it received a contract to design, build, finance and operate a correctional facility for the U.S. Department of Justice's Bureau of Immigration and Customs Enforcement. This was the first time a privately owned prison company received a federal contract. The company had its initial public offering in October 2016 and transitioned into becoming a real estate investment trust in 2013, only to revert back to corporate status in January 2021.

Among its most recent developments, CoreCivic was awarded a new contract in January for the housing of up to 2,706 adult male inmates on behalf of the Arizona Department of Corrections, Rehabilitation & Reentry at the company's 3,060-bed La Palma Correctional Center in Eloy, Arizona. Last September, CoreCivic signed a three-year lease agreement with the State of New Mexico at the company's 596-bed Northwest New Mexico Correctional Center while its contract with the U.S. Marshals Service for the 600-bed West Tennessee Detention Facility in Mason, Tennessee, expired. The inmates were transferred elsewhere and the company is marketing the facility to other government agencies.

In its latest earnings report, the fourth-quarter data published on Feb. 9, CoreCivic reported revenue of $472.1 million, down from $473.4 million one year earlier. The company’s total operating expenses of $332.9 million was down from $343.2 million in the previous year and its net income of $28 million was an improvement over the $26.8 million loss from 12 months earlier. The company ended the fourth quarter with 23-cent earnings per share — one year earlier, it recorded a -22 cents return.

Looking ahead into 2022, CoreCivic forecasted an investment of approximately $75.8 million to $79.3 million in capital expenditures and full-year diluted earnings per share between 72 cents and 86 cents, along with an EBITDA between $354.8 million and $370 million.

“Our fourth-quarter financial performance capped off another year of resilient cash flow generation amid the ongoing global pandemic,” said Damon T. Hininger, CoreCivic's president and CEO, said. “During 2021, we made great strides in enhancing our capital structure by revoking our REIT election, selling non-core assets which enabled us to accelerate our debt reduction strategy, accessed the debt capital markets, extended our debt maturities, and positioned our balance sheet to allow us to pursue attractive growth opportunities and return capital to shareholders.”

CoreCivic shares opened for trading on Wednesday at $8.74, sandwiched between a 52-week range of $6.88 and $12.35.

Related Link: The complete Stock Wars series

The Case For Geo Group: This Boca Raton, Florida-based real estate investment trust was founded in 1984 as Wackenhut Corrections Corporation, a division of the private security company Wackenhut Corporation. It became publicly traded in 1994 and expanded over the years through the acquisitions of other privately operated correctional companies, expanding outside of the U.S. into the U.K., Australia and South Africa.

Among its recent corporate developments have been a new two-year lease agreement signed in October with the State of New Mexico at the company-owned, 600-bed Guadalupe County Correctional Facility with successive two-year renewal option periods through 2041. There was also a six-month contract extension with the U.S. Marshals Service for the 770-bed Western Region Detention Facility in San Diego.

Last month, the company’s BI Incorporated subsidiary began operating a pilot program on behalf of the U.S. Department of Homeland Security that places hundreds of migrants caught crossing the U.S.-Mexico border under house arrest with home confinement of 12 hours per day and electronic monitoring while they await their court hearings.

In its latest earnings report, the fourth-quarter data published on Feb. 17, Geo Group reported $557.5 in revenue, up from $578.1 million from one year earlier. The company’s operating income of $76 million marked a rise from the previous year’s $43.6 million, while its net loss of $49.8 million was down from the $11.8 million in net income 12 months earlier. Its net loss per share of -41 cents was in contrast to the 10-cent earnings per share in the fourth quarter of 2020.

Looking into 2022, the company offered guidance with a full-year net income attributable to GEO and adjusted net income both in a range of 99 cents to $1.07 per diluted share on annual revenues of approximately $2.17 billion, with full-year 2022 adjusted EBITDA to be in a range of $422 million to $438 million.

“We are pleased with our strong operational and financial results, which continue to be underpinned by our valuable real estate assets and quality contracts entailing essential government services,” said George C. Zoley, executive chairman of GEO Group, who added the company remained “focused on allocating our free cash flow towards reducing our net recourse debt, and we are continuing to review potential sales of company-owned assets and businesses, as well as capital structure alternatives with the assistance of our financial and legal advisors. We believe all these steps are in the best interests of our shareholders and other stakeholders.”

GEO Group shares opened for trading on Wednesday at $5.76; the 52-week range for this stock is $4.96 to $11.

The Verdict: When Joe Biden assumed the presidency, one of his first executive orders directed the U.S. Department of Justice to end its use of private prisons for federal inmates. Although private prisons were responsible for incarcerating less than 9% of the U.S. prison population, the president framed his decision as part of an overarching strategy to address systemic racism, stating that the policy shift is part of a wider effort to ensure racial equity.

Things didn’t quite go as planned. Last November, CNN reported that these companies found a loophole in the executive order by putting a new focus on holding detained immigrants for Immigration and Customs Enforcement — while Biden banned new private prison contracts, he didn’t say anything about immigrant detention centers. Both CoreCivic and GEO Group benefited from this loophole.

"The Biden administration is literally allowing private prison companies to fill beds that were emptied out under the executive order with immigrant detainees," said Eunice Cho, a senior staff attorney at the ACLU National Prison Project, in a CNN interview. "These companies are basically playing an end-run around the executive order."

Besides the Biden directive, CoreCivic and GEO Group have been challenged with multiple issues ranging from COVID-19 within prison populations to various lawsuits brought against them regarding prisoner safety. For many people, these companies are not the most attractive investment vehicles.

Still, some bad news could be good news for these companies, especially as crime is rising across the country and the U.S.-Mexico border still attracting a flood of illegal immigrants pouring into the country. And with both stocks trading at the lower end of their 52-week ranges, this could be a good time for traders and investors to do some bargain shopping.

On the other hand, the fourth-quarter performances by both companies could have been better, and it is unclear how long it will take for the companies to steady themselves into a more robust financial performance.

For this Stock Wars duel, the verdict is an adjournment in favor of a wait-and-see approach to determine how CoreCivic and GEO Group progress during the year.

Photo: Mohamed Hassan / Pixabay