Corrections Corp of America
I remember attending a investment conference last summer and one
of the best presentations I heard discussed was the corrections
industry and how it was a smart and uncommon place to put your
CXW was one of the top selections for its steady growth and
defensive nature of its business. Economies may ebb and flow,
but the number of incarcerated Americans is steadily growing
according to the U.S. Department of Justice.
Back in November, 2011 one of my colleagues noted CXW as a great
value play after the company offer some strong guidance earlier
that month. The stock has since risen over 25% and looks to
be building up steam. In addition, the company announced a
quarterly dividend of $0.20 per share beginning in June
Company Description & Developments
Corrections Corporation of America or "CCA" is the nation's leading
provider of correctional solutions to federal, state and local
government. They are the 5th largest corrections network in
terms of beds. CCA employs over 17,500 people and has been
around for almost 30 years. Their detention network currently
houses approximately 75,000 offenders and detainees in more than 60
facilities around the US.
44 of the 60 facilities are company-owned and can house
more than 80,000 in total. CCA currently partners with all three
federal corrections agencies (The Federal Bureau of Prisons, the
U.S. Marshals Service and Immigration and Customs
Enforcement). It also has partnerships with about half of the
states in the US and more than a dozen local municipalities.
They recently bought the Lake Erie Correctional Institution, which
is a 1,800 bed facility for 73 million back in September of
One of the reasons for CCA's advantage in this economy and its
500% growth since the late 90's is that they are able to acquire
prisons at a (very) good price from cash-strapped states who can't
manage their budgets and keep their prison systems in the
Their strategy seems to be working; on February 9th, CCA
reported earnings of $0.41 versus expectations of $0.37, sending
More recently, the company reaffirmed its full-year 2012
earnings per share guidance of $1.60 - $1.70 and first-quarter 2012
earnings per share view of $0.32 - $0.33. The estimates will
exclude charges of $1.4 million - $1.9 million, the company expects
to report during the first quarter of 2012 in connection with
CXW is a smaller mid-cap (2.54 billion) company that is trading at
about 15.5 times forward (expectations for next quarter) earnings.
CXW recently moved back to a Zacks Rank 1 strong buy on
February 14th, 2011
Corrections Corp. reported a quarterly sales increase of only 1%
at their last earnings report but saw an 11% jump in EPS for the
same period. Annual sales were up 2% compared to (fiscal)
FY2010 with total sales of roughly 7.74 billion in FY2011. Thier
earnings increased from $1.39 in FY2010 to $1.54 in FY2011
(diluted) and are expected to earn $1.64 in FY2012 according to the
Zacks Consensus Estimate.
CXW saw funds from operations per share increase to $0.82 from
$0.74 last year and noted that revenue increased to $439.69 million
from $432.20 million last year.
Management revenue from federal partners increased 5.9% to
$192.6 million generated in Q42011 compared with $181.8 million in
Q42010. State partner revenue decreased 1.8% to $216.8
million in Q42011 compared with $220.7 million during the fourth
quarter of 2010 due primarily to a reduction of inmate populations
from the state of California at a certain facility.
Corrections Corp. has surprised analysts to the upside 4
quarters in a row at an average of almost 8%.
Of the 6 analysts who cover CXW, the consensus is for the
company to grow earnings by 7% in the current year (FY2012) and
roughly 7% in FY2013.
In terms of the magnitude of analyst estimate trends, we are
seeing all of the consensus estimates higher than they were 90 days
ago for the next quarter as well as FY2012 and FY2013, the current
quarter has seen some downward adjustments.
The company seemed upbeat on their last conference call; CEO
Damon Hininger, stated, "As we begin 2012, we are preparing to
commence operations at our Jenkins Correctional Center, which we
expect will be completed and begin ramping later this quarter.
Additionally, we are very pleased to have added the states of Ohio
and the Commonwealth of Puerto Rico to our list of government
Market Performance & Technicals
Corrections Corp. has picked up momentum with the markets in the
past 3 months breaking out of the channel it was stuck in for the
last quarter of 2011. CXW has a beta of about 1, but has
seemed to be slightly more volatile than the broad market in the
past several months since eclipsing its channel resistance.
CXWsaw added strength once it broke above the 50 and 200 day
moving averages, which occurred back in January in fairly quick
succession. It currently remains above both the 50 and 200
day averages of $22.92 and $22.12 respectively.
Given the sharp move above the averages, my concern would be an
equally volatile drop if the stock fell below them. To aid in
the prevention of a sharp drop, the stock has built a good support
base (sticky price area) around the $24 level.
CXW matched the S&P 500's performance but managed to outpace
it by over 8.5% in the past 3 months during its recent rally.
The stock remains in a bullish trend and has maintained its
momentum in the past month, leading the index by about 5%.
Given the stock's relatively inexpensive P/E multiple, stable
revenue source and need for more prison space, we could see more
upside from Correction Corp of America in 2012.
Jared A Levy is the Momentum Stock Strategist for
Zacks.com. He is also the Editor in charge of the market-beating
Zacks Whisper Trader Service.
CORRECTIONS CRP (
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