Corrections Corp Up Today

Highlights include Corrections Corporation of America (CXW - Snapshot Report), Cornell Companies, Inc. (CRN - Snapshot Report) and The Geo Group, Inc. (GEO - Snapshot Report).

Shares of Corrections Corporation of America (CXW - Snapshot Report) are up 10% today after the company announced that it has been awarded a contract with the Federal Bureau of Prisons to house up to 2,567 federal inmates at one of the company’s facilities.

The contract calls for the inmates to be housed at the recently-completed Adams County Correctional Facility in Mississippi. CXW owns this facility, and completed its construction in the fourth quarter of 2008. The facility currently houses 2,232 beds, and the company has the capacity to add additional beds to meet the potential 2,567 bed demand from the Bureau of Prisons.

The company has signed a four-year contract, which also provides for up to three two-year renewal options. The contract includes a 50% guarantee of occupancy during the activation period, and a 90% occupancy guarantee thereafter. The company expects to begin to receive inmates under the contract in the third quarter of 2009.

We feel that this contract award provides a good example of the company’s growth potential. CXW constructed the Adams County facility without a contract for the housing of inmates, in anticipation of future demand. Shares of CXW had lagged since the completion of the facility in fourth quarter of 2008, as the company was in line to incur approximately $2 million in annual carrying costs while the facility remained vacant.

Now, however, the facility has a contract in place that appears likely to keep the facility filled to near capacity for the foreseeable future.

Private prison operators only manage approximately 7.9% of prison populations nationwide, but we expect this percentage to continue to grow over time. CXW manages approximately 46% of all private prison and jail beds in the country, significantly more than competitors such as Cornell Companies, Inc. (CRN - Snapshot Report) and The Geo Group, Inc. (GEO - Snapshot Report).

As the market leader, we anticipate that CXW stands to win additional business going forward, and as such, we maintain our Buy rating on the shares.