Despite Trump Rally, Canaccord Sees More Prison Upside

Donald Trump's presidential victory has lowered the risk to contract renewals and the overall private prison REIT business model, Canaccord Genuity’s Ryan Meliker said in a report. He added that the estimates for The GEO Group Inc GEO and Corecivic Inc CXW could prove conservative.

“A Trump victory screens favorably for every federal jurisdiction, and we believe it’s possible that a new attorney general reverses the current plan to cancel BOP contracts upon renewal, though we continue to assume such in our estimates,” Meliker mentioned.

Upside To Shares

Meliker believes there is still upside to GEO Group and CoreCivic, despite the recent rally. He added that GEO Group’s stock was preferred, given the higher dividend yield of 7.5 percent versus CoreCivic’s dividend yield of 7.0 percent, as well as the lower EBITDA-exposure to California.

GEO Preferred

Canaccord Genuity maintains Buy ratings on both GEO Group and CoreCivic, with price targets of $38 and $28, respectively.

GEO Group has “limited exposure to sentencing reform in California, and we believe the Community Corrections exposure may benefit from recent legislation,” the analyst mentioned. He added that although the company’s managed jails in LA County may face some risks, “the overall EBITDA exposure relative to the total portfolio is relatively insignificant.”

CoreCivic faces much more risk from legislation in California, since the company owns two facilities housing out-of-state prisoners. “We see less risk to the leased facility given that the asset is in the state of California and the lease structure gives the CDCR less incentive to move away from the property,” Meliker added.

At Last Check

• Shares of CoreCivic were up 2 percent at $24.48.
• GEO was up 1.88 percent at $35.25.