The Upside Potential of Voting Republican
We view CXW as a pure play on the detention of illegal immigrants. $
"We've had a lot of new shareholders coming into the stock, with a shift from value investors to growth investors."
The upshot for investors now: The current excitement seems justified, but it will likely ramp up near-term volatility. Those interested in owning a share of the prison business should be thinking long term and bracing for inevitable bumps.
There are several critical drivers that have drawn the attention of growth investors, starting with the combination of prison crowding and low penetration for private-jail operators. "It's as if they run high-occupancy hotels where people can check in but they can't check out," says Paul J. Rasplicka, lead manager of the $1.4 billion AIM Capital Development Fund, which first added the stock in 2003. "State and federal governments' need exceeds available beds, and the company has them."
Federal prisons are operating at more than 130% of capacity, and two dozen state prison systems are operating at 100% capacity or higher, according to government statistics cited by the company. At latest count, there were about 2.2 million men and women in prison, the Justice Department says.
Bulls believe that Corrections Corp., with a market value of about $2.6 billion, is uniquely positioned to benefit, given that the company has about half the private-prison market. Meantime, private-jail managers have ample room for growth, with less than 7% of the national prison market.
Significant demand is expected to come from the Department of Homeland Security's Immigration and Customs Enforcement, or ICE. Under the new model for border enforcement, non-Mexican illegal border crossers are no longer set free while they await a hearing. People are now detained until their hearing, and Congress is being asked for funds to pay for more beds.
"ICE has been the catalyst that drove the stock and that broke down a logjam in demand," Jefferies's Mr. Hie says. Wallshite Joornal