The New York Times
, for the first time since 1972 we have seen a reduction in the
U.S. prison population instead of an increase. That spells bad news
for publicly traded prison stocks like
Cornell Companies Inc.
Corrections Corp. of America
Geo Group Inc.
And what's more, that reduction isn't just a tiny dip -- state
prisons held 1.4 million people as of January 1, about 6% less than
the year before. That's a substantial drop-off that could signal
continued trouble for these corrections companies.
Don't get me wrong, this drop is good news for public safety
advocates, our overtaxed criminal justice system and a host of
others. But for investors who always thought publicly held prison
companies were low-risk ways to make a bundle off the corrections
system, it's been a rude awakening.
Let's look at each of these three prison stocks, and why they
are each "sells" right now in
my FREE Portfolio Grader stock ranking tool
Prison Stock to Sell - Cornell Companies, Inc. (
Cornell Companies, Inc.
) provides correctional, detention and rehabilitation services that
are outsourced by federal, state and local government agencies. Its
Abraxas Youth and Family Services division also provides
residential, detention, shelter care, and community-based services
for juveniles between the ages of 10 and 18. First Analysis
Securities recently downgraded the Houston company to "equal
weight" from "overweight" in late February after Arizona's governor
indicated it would phase out the use of Cornell's private
out-of-state prison beds for inmates. The loss of the Arizona
prisoners which could cut into Cornell's annual earnings by 35
cents to 45 cents per share. Earnings have already declined for the
last three consecutive quarters, so that's not an inspiring sign
for this prison stock. Shares have lagged the market in 2010, down
about -4% compared to a +3% gain in the broader market YTD.
Prison Stock to Sell - Corrections Corporation of America (
Corrections Corporation of America
) owns and operates privatized correctional and detention
facilities in the United States. As of December 31, CXW operated 65
prison facilities, including 44 sites that it owned, in 19 states
and the District of Columbia. It also owned 2 additional
corrections facilities that it leased to third-party operators.
with Systemwide, Corrections Corporation of America boasts a
total capacity of 87,000 beds.
Though CXW's fourth-quarter profit beat the Street in early
February, the company announced a weak Q1 outlook with estimated
earnings of 28 cents to 30 cents a share, compared previous
estimates of 33 cents. Shares have been brutalized so far in 2010,
losing 17% even while the market has been moving up, and it looks
like more bad news is yet to come.
Prison Stock to Sell - Geo Group, Inc. (
GEO Group, Inc.
) provides government-outsourced correctional services for prisons,
specializing detention and mental health. GEO is a truly global
prison stock, with facilities in the United States, Canada,
Australia, South Africa, and the United Kingdom. The company also
provides consultation and management services relating to the
design and construction of new correctional and detention
facilities. In mid-February, GEO Group announced its Q4 earnings
fell 6%, weighing on shares. Then on March 2, word that the Federal
Bureau of Prisons would cancel plans for a GEO facility to house
illegal aliens convicted of crimes sent shares down about 8% in one
trading day alone. Share are down double-digits year to date.
As of this writing, Louis Navellier did not own any shares of
these stocks in personal or client portfolios.