UPDATE: MLV & Co. Sees Profits In Prisons, Initiates Coverage On The GEO Group

MLV & Co. initiated coverage of The GEO Group Inc GEO Tuesday with a Buy rating and $46 price target.

Analysts Ryan Meliker and Michael B. Kodesch believed "the company offers a very compelling story that includes a strong operating free cash flow, an attractive common dividend, defensive operating fundamentals, and robust external growth."

"While US prisoner levels have been roughly flat since 2001, demographic trends support modest growth going forward. With per-diem escalators and minimum occupancy guarantees built into private industry contracts, we see minimal risk to same-store operating fundamentals going forward," according to Meliker.

Meliker noted that the company trades "at an attractive 8.6 percent operating free cash flow yield on 2014 estimates and at a Recurring FFO multiple that is over 5x below the REIT sector average, we believe continued execution will lead GEO's multiple to expand."

The $46 year-end 2015 price target was "based on our discounted cash flow analysis, which assumes a 9 percent cost of equity and a 1 percent terminal growth rate. Our valuation implies a 12.4x 2015E Recurring FFO multiple, which we believe is reasonable given the company’s historical valuation and the current valuations of GEO's comp set."

The GEO Group Inc recently traded at $37.96, up 1.06 percent.