The GEO Group Inc.

Full Analysis

The GEO Group Inc. provides government-outsourced services in the management of correctional, detention and mental health facilities in the US, Australia, South Africa, the UK and Canada. The company operates correctional and detention facilities, including maximum, medium, and minimum security prisons; immigration detention centers; minimum security detention centers; and mental health and residential treatment facilities. GEO Group operates approximately 67 correctional, detention and mental health and residential treatment facilities and had approximately 59,000 beds under management.

On May 1, the Zacks #1 Rank stock reported first-quarter earnings of 22 cents per share, up from 16 cents last year and two cents above expectations. Driving the earnings growth, revenues rose by 28% to $237 million. The following business segments reported double-digit increases in revenue: US Corrections, up 11.9% to $164.3 million; International Services, up 24.7% to $28.8 million; and GEO Care, up 48.3% to $22.1 million.

Looking forward, the company increased its full-year 2007 profit forecast to between $2.02 and $2.15 per share, up from prior guidance of $1.96 to $2.11. However, GEO did reduce its full-year operating revenue guidance to between $886 million and $901 million, down from previous estimates of $900 million to $920 million. The lower revenue forecast was the result of a lost contract to manage a federal prison.

According to George Zoley, Chairman and CEO, “Our organic growth pipeline remains strong with projects totaling more than 8,700 beds under development representing more than $148 million in projected annual operating revenues. These projects are expected to start between the first quarter of 2007 and the second half of 2008.”

GEO Group declared a 2-for-1 stock split on May 1, which became effective Jun 1, 2007. The company’s outstanding shares increased to approximately 51.4 million from roughly 25.7 million.

Following the company’s 10.26% earnings surprise, full-year 2007 estimates were increased by three cents to $1.05, the second upward revision in three months. Next year’s estimates are also on the rise, most recently by six cents to $1.31. Furthermore, the company is ranked a number one out of 20 companies in the Safety-Protection category.

Year-to-date, GEO has risen over 56%, furthering the company’s stellar 2006 return of 145.5%. The stock is currently trading at record highs, above the 21-day, 50-day and 200-day moving averages. GEO’s underlying trend is bullish and with no resistance to impede the stock’s upward momentum, look for additional gains in the coming months.