Canaccord Upgrades CoreCivic To Buy, Likes The Lowered Level Of Risk Following Dividend Cut

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Shares of Corecivic Inc CXW plummeted on news of the intention to renegotiate the South Texas Family Residential Center [STFRC] on August 3.

Despite a subsequent upturn, shares are still down 19 percent since the announcement, despite the company losing only 15 percent of annual EBITDA from the STFRC, Canaccord Genuity’s Ryan Meliker said in a report.

Meliker upgraded the rating on the company from Hold to Buy, while raising the price target from $22 to $28.

Overhangs Lifted

Following the dividend cut announced by CoreCivic, an overhang “that we had expected to limit upside” has been eliminated. Meliker commented, “While this call is late, we don’t think it's too late, as we continue to see material upside to the shares.”

The shares overreacted to the loss of annual EBITDA from the STFRC. Moreover, the lost EBITDA could be offset by multiple expansion “fueled by the elimination of political and dividend cut overhangs,” the analyst added.

Trump’s victory in the U.S. election also adds to the external growth opportunity, especially related to ICE [Immigration and Customs Enforcement] contracts, “which would result in substantive earnings growth and would warrant further multiple expansion,” Meliker wrote.

In a separate note, Meliker maintained a Buy rating on The GEO Group Inc GEO, while raising the price target from $35 to $38. He cited “the lowered risk profile of prison REITs” and increased optimism regarding “external growth opportunities specifically inherent to the recent surge in immigrant populations and consequent ICE needs.”

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Posted In: Analyst ColorLong IdeasUpgradesPrice TargetReiterationAnalyst RatingsTrading IdeasCanaccord GenuityDonald TrumpRyan Meliker
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