CXW (Corrections Corp of America), submitted for my consideration, currently trading at $20.38, Book Value 12.73:
I like this stock at about $18 for a trade (book value about 1.4 instead of 1.6), but never for a long term investment, looking for consolidation and a fair value around $22-23 as detailed below.
When your product is shoes you can reduce labor costs by having them made in India or china. If you can't send your product overseas then you either have to reduce wages & benefits or total staff, which is what CXW has done.
Unfortunately CXW's customer isn't a captive audience, and state governments now realize the only reason CXW can provide cheaper detention is they fail to maintain the same oversight, safety standards, and medical standards that are actually required by the state. There have been massive fines and injunctions levied against private prisons, and more are sure to come considering these short coming are where their savings are coming from.
Officer misconduct and poor conditions aren't even the whole of their troubled future. If you don't have the money for Nike's shoes, then you don't buy them. If your state government is in a financial crisis you do two things (like the largest user of private prisons, California):
1) Transfer your prisoners to federal prisons and off your books (60% of inmates are incarcerated on drug charges, all of which have federal minimum sentencing requirements.)
2) Parole your violent offenders (since you can, and it's cheaper)
3) change the law so you don't put as many people in prison.
This gives a lot of uncertainty to private prisons in this country (countries without solid civil rights laws are a better option for investment: China & Africa for example). While the companies foresee 20% growth, I fail to understand how it could possibly be more than 5% (especially considering their margin is only about 1% better than the government's). I imagine their numbers are based on getting all of the prisoners in the State & federal systems which will never happen, not only for the above stated reasons but because there is considerable competition in this field.
Additionally, since America tends to simply institutionalize mentally ill people medical costs will continue to spiral out of control at a rate much faster than a simple prison system can grow. These prisons should probably worry less on detention and more on rehabilitation, not only for societies' sake but for their own bottom line.
So due to all this there will be a significant pressure for consolidation and failure of these prison systems within the next 3-5 years, which depresses their price right now. CXW, specifically issued 587.48 million in debt in 2009, with 314.69 of income from operating activities And while it's quick ratio is a fairly decent 1.5, I just can't see the growth they foresee for themselves so I believe financing will continue to be an issue.
Without a quick of at least 2.5, major changes in their operating practices, and a more dependable client base I think this is a poor investment choice. Not because this is a terrible stock itself, but because there are better stocks out there. But a fair trade to cash in on all the suckers who haven't considered it's market position: "I LIKE JAILS!", "CRIME WON'T GO AWAY!" and think this is a strait shooter with upper management written all over it. So I can't write it off completely, but it's too uncertain for me.
I like this stock at about $18 for a trade (book value about 1.4 instead of 1.6), but never for a long term investment, looking for consolidation and a fair value around $22-23 as detailed below.
When your product is shoes you can reduce labor costs by having them made in India or china. If you can't send your product overseas then you either have to reduce wages & benefits or total staff, which is what CXW has done.
Unfortunately CXW's customer isn't a captive audience, and state governments now realize the only reason CXW can provide cheaper detention is they fail to maintain the same oversight, safety standards, and medical standards that are actually required by the state. There have been massive fines and injunctions levied against private prisons, and more are sure to come considering these short coming are where their savings are coming from.
Officer misconduct and poor conditions aren't even the whole of their troubled future. If you don't have the money for Nike's shoes, then you don't buy them. If your state government is in a financial crisis you do two things (like the largest user of private prisons, California):
1) Transfer your prisoners to federal prisons and off your books (60% of inmates are incarcerated on drug charges, all of which have federal minimum sentencing requirements.)
2) Parole your violent offenders (since you can, and it's cheaper)
3) change the law so you don't put as many people in prison.
This gives a lot of uncertainty to private prisons in this country (countries without solid civil rights laws are a better option for investment: China & Africa for example). While the companies foresee 20% growth, I fail to understand how it could possibly be more than 5% (especially considering their margin is only about 1% better than the government's). I imagine their numbers are based on getting all of the prisoners in the State & federal systems which will never happen, not only for the above stated reasons but because there is considerable competition in this field.
Additionally, since America tends to simply institutionalize mentally ill people medical costs will continue to spiral out of control at a rate much faster than a simple prison system can grow. These prisons should probably worry less on detention and more on rehabilitation, not only for societies' sake but for their own bottom line.
So due to all this there will be a significant pressure for consolidation and failure of these prison systems within the next 3-5 years, which depresses their price right now. CXW, specifically issued 587.48 million in debt in 2009, with 314.69 of income from operating activities And while it's quick ratio is a fairly decent 1.5, I just can't see the growth they foresee for themselves so I believe financing will continue to be an issue.
Without a quick of at least 2.5, major changes in their operating practices, and a more dependable client base I think this is a poor investment choice. Not because this is a terrible stock itself, but because there are better stocks out there. But a fair trade to cash in on all the suckers who haven't considered it's market position: "I LIKE JAILS!", "CRIME WON'T GO AWAY!" and think this is a strait shooter with upper management written all over it. So I can't write it off completely, but it's too uncertain for me.
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