Why Investors Aren't Likely To Focus On GEO Group's Q4 EBITDA Miss

Michael Kodesch of Canaccord Genuity was modeling GEO Group to report a fourth-quarter adjusted EBITDA of $107.8 million but the company reported an adjusted EBITDA of $101.2 million, which also fell short of the consensus estimate of $105.4 million.

Analyst Commentary

In a research report following the results, Kodesch brushed off the EBITDA miss and highlighted other notable developments, including the acquisition of Community Education Centers (CEC) for $360 million and a strong fiscal 2017 guidance — both of which should "be more focal to investors."

Investors may be inclined to agree with the analyst as prison stocks have been surging since President Donald Trump's election win back in November. Related Link: Does Jeff Sessions As Attorney General Affect The Thesis On CoreCivic?

Specifically, the acquisition of CEC double's GEO Group's community re-entry beds, which will be viewed favorably by investors as it is consistent with the company's diversification of its business model. Moreover, the deal is expected to generate $5 million of synergies over the next year and be modestly accretive in 2017 and 9-11 percent accretive to adjusted EBITDA in 2018.

Kodesch also suggested that GEO Group faces further growth opportunities by taking an active role in acquiring one or more of the remaining non-public entities in the market.

"As we believe the Street is more focused on what's ahead of the company in today's pro growth landscape, we believe this print should fuel continued momentum in the stock," Kodesch concluded.