On Wednesday, Jones Trading commenced coverage on shares of CoreCivic (NYSE:CXW), a company operating private correctional facilities in the United States. The firm issued a Hold rating on the stock, highlighting the significant influence of undocumented migration trends and enforcement efforts on the company's revenues and profitability since 2020.
CoreCivic, one of the two publicly-listed private corrections operators in the U.S., manages over 72 facilities with a combined capacity of approximately 78,500 beds, offering correction, detention, and re-entry services to federal, state, and local governments.
The upcoming 2024 election is expected to provide a boost for the company as both political parties have stressed the need to strengthen border policies, potentially increasing the demand for privatized detention facilities.
Despite the potential tailwinds from immigration policy, Jones Trading adopts a cautious stance, presenting a balanced risk/reward outlook for CoreCivic's stock. The firm's conservative estimates for the company's revenue and Adjusted EBITDA growth, in comparison to the consensus, reflect a well-defined view of the possible downside for the shares. This perspective is balanced against the qualitative upside from immigration policy, current valuation multiples, and the appreciable risks involved.
Jones Trading's Hold rating also indicates a wait-and-see approach for greater clarity on future budgets and contracts from the U.S. Immigration and Customs Enforcement (ICE (NYSE:ICE)) with CoreCivic. Additionally, the firm notes interest in the company's plans to recover lost revenues following the closure of the Dilley, Texas facility and, over the long term, strategies to diversify revenue streams by expanding its electronic monitoring business.
In other recent news, CoreCivic, a company specializing in private prisons and detention centers, experienced a significant shift as the U.S. Immigration and Customs Enforcement (ICE) decided to terminate its contract with the company for the South Texas Family Residential Center.
Following this development, Noble Capital downgraded its rating for CoreCivic from Outperform to Market Perform, reflecting the potential challenges the company may face in the near term.
Despite this setback, CoreCivic reported a notable 9% increase in its first-quarter revenue for 2024, surpassing $500 million. This growth was attributed to increased contributions from federal, state, and local government partners, with federal revenue alone climbing by 11%.
In addition, the company's occupancy rates rose to 75.2%, the highest since Q1 2020, and the net operating income for the Community segment surged by 56%.
As part of its recent developments, CoreCivic implemented an aggressive share repurchase program, buying back 2.7 million shares. The company has also updated its full-year financial guidance, forecasting growth in adjusted EBITDA, EPS, and normalized FFO per share. However, it's worth noting that the GAAP net income per share decreased from $0.11 in the previous year to $0.08 in Q1 2024.
Despite the uncertainties, CoreCivic remains optimistic about its prospects, expecting adjusted EPS of $0.66 to $0.76 and normalized FFO per share of $1.56 to $1.66 for the full year. The company is also preparing to bid on the monitoring ISAP contract, expiring in July 2025, and considering partnerships for its California City Correctional Center facility.
InvestingPro Insights
As investors consider the Hold rating from Jones Trading on CoreCivic (NYSE:CXW), InvestingPro data provides a deeper dive into the company's financial health and market position. With a market capitalization of $1.46 billion and a P/E ratio adjusted for the last twelve months as of Q1 2024 at 16.42, CoreCivic appears to be valued reasonably in comparison to its earnings. The company has shown a revenue growth of 4.81% over the last twelve months, indicating a steady increase in its financial performance.
From an operational standpoint, CoreCivic's gross profit margin as of Q1 2024 stands at 23.38%, which may be of interest to investors looking at the company's efficiency in generating profit from its revenues. Moreover, the InvestingPro Tips reveal that management's aggressive share buyback strategy could be a signal of confidence in the company's value proposition. It's also noteworthy that analysts predict CoreCivic will be profitable this year, aligning with the positive sentiment on the company's future performance.
For those seeking more comprehensive analysis and additional insights, there are more InvestingPro Tips available for CoreCivic, which can be accessed through InvestingPro. Investors can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking further potential for informed decision-making.
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