Does Jeff Sessions As Attorney General Affect The Thesis On CoreCivic?

“Corecivic Inc CXW's massive beat in the quarter, the subsequent guidance raise, and the official confirmation of Jeff Sessions were met with investor enthusiasm in the post-print trading hours, as the stock was up over 8 percent at one point before trading off slightly to end the day,” Canaccord Genuity’s Michael Kodesch said in a note.

The analyst maintains a Buy rating on the company, while raising the price target from $30 to $34.

Positive Impact

Kodesch mentioned that while the new attorney general has led to increased confidence in the sustainability of balance of payment business, there also is excitement around several near-term growth opportunities for CoreCivic.

“Though we remain cautious regarding the CAR-16 procurement and general BOP trends, we're also steadfast in our belief that valuation, though historically elevated, still begets upside to the name, especially given the persisting discounted valuation relative to the overall REIT sector,” the analyst stated.

Despite the recent rally in the share price, Kodesch believes that given the company’s higher dividend yield, more attractive external growth profile, lower leverage and more defensive internal growth business model compared to its REIT peers, there is room for further erosion of the discounted valuation.

Conservative Guidance

The analyst also noted that despite the FFO beat of $0.09 for the quarter, CoreCivic has only raised the midpoint of its full-year 2017 guidance by $0.045.

“While guidance now assumes a slower ramp in the Cibola contract and California out-of-state beds beginning to run off on 10/1/17, we believe higher occupancy across the business and better expense management weren't fully reflected in the guidance update,” the analyst went on to say.

Kodesch also believes that the guidance does not include any new contract announcements, and could prove to be conservative, setting the stage for a beat and raise 2017.