Shares in Corrections Corporation of America dropped 36 percent Thursday after the U.S. Department of Justice announced it would phase out use of private prisons.
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The GEO Group, Inc.is a real estate investment trust, which specializes in the ownership, leasing and management of correctional, detention and re-entry facilities and the provision of community services and youth services in the United States, Australia, South Africa and the United Kingdom. “While this is possible, we believe it is unlikely”, Canaccord Genuity analyst Ryan Meliker wrote. The now-declining prison population, according to Yates, allows the Department to reallocate resources and move inmates to bureau-owned facilities.
The decision will only apply to the 22 prisons within the Bureau of Prisons jurisdiction and not those under Immigration and Customs Enforcement or the U.S. Marshals.
Still, a spokesman for GEO said the impact of the decision on the company was “not imminent” as numerous contracts are set to run for several more years. The REITs responded by saying any impact isn’t imminent and they will continue to work with government partners to ensure safe and secure operations.
Corrections Corp has said that contracts with the BOP represented only about 7 percent of its annual revenue.
In an emailed statement Thursday, ICE defended the use of private prisons and gave no indication it would halt the practice. In addition, the Justice Department’s plan won’t be implemented overnight. The average volume stands around 0.78 million shares.
The Justice Department’s action “was not a surprise to us” given that the Bureau of Prisons “has been very, very successful in reducing their system population”, Corrections Corp. chief executive officer Damon Hininger said on a conference call with analysts Friday.
“We’ve had a long standing private-public partnership with the BOP that dates back to the 1990s. We provide customized solutions for our partners as they need them”.
In 2015, the Bureau of Prisons accounted for 16% of GEO’s revenue and for 11% of Corrections revenue.
Group Inc. said Friday that the Federal Bureau of Prisons (BOP) has rescinded the renewal of the contract to operate the company-owned D. Ray James Correctional Facility.
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David Shapiro, an attorney at the MacArthur Justice Center at Northwestern University, said the key question now was whether the Obama administration’s successor would follow through on the Justice Department’s decision. Rating Scale; where 1.0 rating means Strong Buy, 2.0 rating signify Buy, 3.0 recommendation reveals Hold, 4.0 rating score shows Sell and 5.0 displays Strong Sell signal.
