Trending

Trump Immigration Crackdown Is Great for Private Prison Stocks

It was only last summer that their entire business model seemed to be in danger. The Obama administration decided to phase out their use by the federal Bureau of Prisons, and the companies’ shares plummeted. But Mr. Trump’s election victory almost instantly pulled the two companies out of their market slump, as I wrote in early December. That was only the beginning.

Investor expectations that the actual business of incarceration and detention will expand under Mr. Trump have fueled their levitating share prices. “It looks as though Geo and CoreCivic have several years of sharp growth ahead of them,” said Michael Kodesch, an analyst with Canaccord Genuity. “Based on that, they still look undervalued.”

For one thing, Jeff Sessions, Mr. Trump’s new attorney general, announced last month that the federal Bureau of Prisons will continue to rely on private prison companies. That reversed an August decision announced by Sally Q. Yates, then the deputy attorney general. (Ms. Yates stayed on as acting attorney general in the Trump administration’s first days, but the new president fired her on Jan. 30 when she refused to defend his executive order closing the nation’s borders to refugees and people from certain predominantly Muslim countries.)

In her August memo, Ms. Yates said the private prisons “compare poorly to our own bureau facilities” on financial grounds, adding that they lagged in rehabilitative services like educational programs and job training. Ms. Yates also pointed out that the federal prison population had begun to decline, thanks to revised sentencing guidelines and other reforms.

But in a terse refutation of the Obama administration, Mr. Sessions said the Yates memo had “impaired the bureau’s ability to meet the future needs of the federal correctional system. “Therefore,” he said, “I direct the Bureau to return to its previous approach.” That reversal helped bolster the prison stocks.

Even more important over the short term is the administration’s declared policy of cracking down on unauthorized immigrants with waves of deportations, detentions and incarcerations, a program that will require a vast expansion of federal resources. Financial analysts say this could mean that newly detained immigrants will flow into underused buildings owned by the two companies, filling “idle” space and significantly bolstering profits.

“The deportation crackdown is doing very good things for these companies,” said Terry Dwyer, an analyst with KDP Investment Advisors. “On a personal level, it leaves a sour taste in my mouth, but I guess business is business.”

When the companies’ executives reported earnings in February, it was too early for hard numbers on how the shifts in United States policy were affecting their companies’ bottom lines, but their excitement was evident.

In a conference call with Wall Street analysts on Feb. 22, for example, George C. Zoley,…

Read the full article from the Source…

Join The Discussion