Private Prison Stocks: Why GEO Stock and CXW Stock Are Slumping Today

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GEO Group (NYSE:GEO) and CoreCivic (NYSE:CXW) are both down in trading today after each announced new measures to reduce outstanding debts. CXW stock is down more than 17% while GEO stock is down more than 20%.

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This morning, GEO announced it would be suspending its quarterly dividend and looking at potentially changing the company’s structure from that of a real estate investment trust (REIT). That shift is intended to maximize cash available for reducing company debt.

Also today, CXW announced it would conduct a $400 million offering of senior notes due 2026. CXW plans to use proceeds from that sale to redeem all outstanding senior notes due in 2022 and most of the senior notes due in 2023, as well as other debt-reducing and general corporate purposes.

The deleveraging moves come as the sector as a whole is under pressure due to a January executive order by President Joe Biden ending the renewal of federal contracts with private prisons. That has had a strong effect on sentiment towards private prison stocks, which especially profited under the policies of former President Donald Trump.

That being said, this executive order should be put in perspective. While there are approximately 14,000 incarcerated people in federal private prisons, there are another 120,000 people incarcerated in private prisons contracted by individual states. The order doesn’t end contracts, simply stops the Department of Justice from renewing them; some of these contracts won’t expire for years. And the order doesn’t say anything about immigration detention facilities that are run by private contractors, including CoreCivic and GEO.

The Bottom Line on GEO Stock Today

While the past year has seen contentious political debate around criminal justice, investors shouldn’t expect CoreCivic and GEO Group to quietly fade away as their contracts expire. The companies have since begun to diversify into recidivism treatment and real estate, as well as electronic monitoring.

GEO stock and CXW stock both saw dramatically higher trading volume today. CoreCivic has an average daily trading volume of 2.58 million, and has seen 12.29 million trades today, an increase of 476%. GEO Group has seen 22.89 million trades compared with an average daily volume of 4.79 million, an increase of 477%.

On the date of publication, Vivian Medithi did not have (either directly or indirectly) any positions in the securities mentioned in this article.