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What Biden's Executive Order Means For Private Prison Stocks

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What Biden's Executive Order Means For Private Prison Stocks

President Joe Biden signed an executive order Tuesday ordering the U.S. Department of Justice to end its use of private prisons for federal inmates.

The Executive Order: Private prisons are responsible for incarcerating less than 9% of the U.S. prison population, and the president framed his decision as part of an overarching strategy to address systemic racism, stating that the policy shift is part of a wider effort to ensure racial equity.

The executive order forbids the renewal of private prison contracts, but it neither abrogates existing contracts nor covers the private prisons used by the U.S. Department of Homeland Security to detain immigrants.

"This is the first step to stop corporations from profiteering off of incarcerating – incarceration that is less humane and less safe, as the studies show," said Biden.

"And it is just the beginning of my administration's plan to address systemic problems in our criminal justice system."

The Stock Impact: Only two companies within this sector are publicly traded: Nashville-headquartered CoreCivic Inc (NYSE: CXW) and Boca Raton, Florida-based The GEO Group Inc (NYSE: GEO), which are contracted by federal and state agencies to operate correctional facilities.

Both companies had operated as real estate investment trusts since 2013, but CoreCivic announced in August that it would revert to its earlier C-corporation status on Jan. 1.

Both companies were already experiencing financial stress before Biden's executive order, with declining prison populations and increased expenses associated with maintaining health standards during the pandemic gnawing at their profits.

CoreCivic's third-quarter revenue of $468.2 million was down from $508.5 million one year earlier, while GEO Group's third- quarter revenue of $579 million was down from $631.5 million one year earlier.

And the Biden announcement did not help: GEO Group shares tumbled 12.33%, while CoreCivic shares took a 7.51% slide.

CoreCivic, GEO CEOs On Federal Policy: While Biden's election campaign included his opposition to private prisons, GEO Group Chairman and CEO George Zoley has said he believed the status quo would be maintained once Biden was in the White House.

"We grew fairly steadily under the Obama-Biden administration previously," he said in October during his company's third-quarter earnings report call. "And unless there's a major change in border security, I don't know that there will be much change."

CoreCivic President and CEO Damon Hininger also viewed Biden's campaign promise as unfeasible, pointing out that the U.S. Marshals Service, a bureau within the Justice Department, does not operate its own correctional facilities and is wholly reliant on private prisons to house its inmates.

"If there is a policy decision made where the Marshals Service can no longer use the private sector for whatever reason, that would be very, very hard, if not impossible, to effect," he said in his company's third-quarter earnings call in early November.

Following Biden's ceremonial signing of the executive order, CoreCivic issued a statement noting the federal Bureau of Prisons already "experienced a steady decline in inmate populations over the past several years, so today's announcement was no surprise considering the agency's diminished need for capacity."

GEO Group did not issue a public statement on the Biden decision.

 

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Posted-In: Joe Biden prisonsNews Politics Small Cap General Best of Benzinga

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