Corrections Corp of America (CXW - Snapshot Report)
remember attending a investment conference
last summer and one of the best presentations I heard discussed was the
industry and how it was a smart and uncommon place to put your money.
was one of the top selections
for its steady growth and defensive nature of its business.
Economies may ebb and flow, but the number of
incarcerated Americans is steadily growing according to the U.S.
in November, 2011 one of my colleagues
noted CXW as a great value play after the company offer some strong
earlier that month. The stock has since
risen over 25% and looks to be building up steam. In
addition, the company announced a
quarterly dividend of $0.20 per share beginning in June 2012.
Corrections Corporation of America or “CCA” is the nation’s leading
correctional solutions to federal, state and local government.
They are the 5th largest
corrections network in terms of beds.
CCA employs over 17,500 people and has been around for almost 30
years. Their detention network currently
houses approximately 75,000 offenders and detainees in more than 60
44 of the 60 facilities are company-owned and
can house more than 80,000 in total. CCA currently partners with all
federal corrections agencies (The Federal Bureau of Prisons, the U.S.
Service and Immigration and Customs Enforcement). It also has
partnerships with about half of
the states in the US and more than a dozen local
They recently bought the Lake Erie
Correctional Institution, which is a 1,800 bed facility for 73 million
September of 2011.
One of the reasons for CCA’s
advantage in this economy and its 500% growth since the late 90’s is
are able to acquire prisons at a (very) good price from cash-strapped
who can’t manage their budgets and keep their prison systems in the
Their strategy seems to be
working; on February 9th, CCA reported earnings of $0.41 versus
expectations of $0.37, sending shares higher.
recently, the company reaffirmed
its full-year 2012 earnings per share guidance of $1.60 - $1.70 and
first-quarter 2012 earnings per share view of $0.32 - $0.33. The
exclude charges of $1.4 million - $1.9 million, the company expects to
during the first quarter of 2012 in connection with refinancing
CXW is a smaller mid-cap (2.54 billion) company that is trading at
about 15.5 times
forward (expectations for next quarter) earnings. CXW
recently moved back to a Zacks
Rank 1 strong buy on February 14th, 2011
Corp. reported a
quarterly sales increase of only 1% at their last earnings report but
saw an 11%
jump in EPS for the same period. Annual sales were up 2%
compared to (fiscal)
FY2010 with total sales of roughly 7.74 billion in FY2011. Thier
earnings increased from $1.39 in
FY2010 to $1.54 in FY2011 (diluted) and are expected to earn $1.64 in
according to the Zacks Consensus Estimate.
CXW saw funds from operations per
share increase to $0.82 from $0.74 last year and noted that
revenue increased to $439.69
million from $432.20 million last year.
revenue from federal
partners increased 5.9% to $192.6 million generated in Q42011 compared
$181.8 million in Q42010. State partner revenue
decreased 1.8% to $216.8 million in Q42011 compared with $220.7 million
the fourth quarter of 2010 due primarily to a reduction of inmate
from the state of California at a certain facility.
Corrections Corp. has surprised analysts to
the upside 4 quarters in a row at an average of almost 8%.
the 6 analysts who cover CXW, the
consensus is for the company to grow earnings by 7% in the current year
and roughly 7% in FY2013.
In terms of the magnitude of
analyst estimate trends, we are seeing all of the consensus estimates
than they were 90 days ago for the next quarter as well as FY2012 and
the current quarter has seen some downward adjustments.
The company seemed upbeat on their
last conference call; CEO Damon Hininger, stated, "As we begin 2012, we
are preparing to commence operations at our Jenkins Correctional
we expect will be completed and begin ramping later this quarter.
we are very pleased to have added the states of Ohio and the
Puerto Rico to our list of government partners."
Market Performance &
Corrections Corp. has picked up momentum with the markets in the past 3
months breaking out
of the channel it was stuck in for the last quarter of 2011.
has a beta of about 1, but has seemed to be slightly more volatile than
broad market in the past several months since eclipsing its channel
added strength once it broke
above the 50 and 200 day moving averages, which occurred back in
fairly quick succession. It currently
remains above both the 50 and 200 day averages of $22.92 and $22.12
the sharp move above the
averages, my concern would be an equally volatile drop if the stock
fell below them. To aid in the prevention of a sharp drop,
stock has built a good support base (sticky price area) around the $24
matched the S&P 500’s
performance but managed to outpace it by over 8.5%
past 3 months during its recent rally. The
stock remains in a bullish trend and has maintained its momentum in the
leading the index by about 5%.
the stock’s relatively inexpensive
P/E multiple, stable revenue source and need for more prison space, we
see more upside from Correction Corp of America in 2012.
A Levy is the
Momentum Stock Strategist for Zacks.com. He is also the Editor in
charge of the
Whisper Trader Service.