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  • goprivate_2000 goprivate_2000 Sep 8, 2000 11:56 AM Flag

    Good News for Prison Investors (part 1)

    COMPANIES THAT RUN PRISONS MAY BE POISED FOR A
    BREAKOUT

    Part 1

    By Brian Edwards and Jill Ward

    Chicago Tribune
    Sept. 6, 2000

    Wall Street has
    thrown the book at companies who manage federal, state
    and county prisons. The past year saw many of these
    stocks
    relegated to the slammer, losing 40 to 80 percent of their
    value.

    But some analysts say investors in the companies
    that house jailbirds may be in for some good news for
    a change. In fact, some Wall Street experts judge
    prison stocks as undervalued and attractive for their
    growth potential. If investors are patient, they may be
    rewarded.

    Why the downturn? Several negative factors have
    punished these stocks. The slowdown of state procurements,
    delays in federal commitments, because of contracting
    issues, damaging media and lack of financing have all
    driven stock prices down. The strong economy has also
    helped push the crime rate to all-time lows, even though
    prison populations are at all-time highs.

    It's
    no secret that the major companies served some hard
    time last year. The stock prices of both Wackenhut
    Corrections Corp. (New York Stock Exchange: WHC) and Cornell
    Companies (NYSE: CRN) lost about 60 percent of their value
    within the past year. Prison Realty Trust
    NYSE: PZN)
    received the stiffest penalty: Its stock is more than 80
    percent off its 52-week high.

    But these companies
    may soon be heading up. The industry is
    counter-cyclical: In poor economic times, offender management
    companies thrive as the crime rate goes up. Analyst Howard
    Halpern of Taglich Brothers, Inc. in New York City
    believes the industry's recent financial downturn
    represents an opportunity for investors to buy while prices
    are low.

    "I'm not really sure why investors
    haven't recognized the importance of what (these
    companies) do," Halpern said. "The rate of
    growth is
    swelling because people are staying in jail for longer
    periods due to truth in sentencing and mandatory
    sentences."

    That translates into more profits for the
    companies who incarcerate criminals. Total public
    expenditures for incarceration currently
    exceed $40
    billion annually, and analysts expect that prisons will
    be home to over 2 million inmates by 2001. These
    factors combined with the trend toward longer sentences
    and the cost savings associated with privatization
    spell out increased growth.

    Privatized adult
    offender management is a $2 billion industry driven by
    government contracts -- and competition is slim.

    The
    industry as a whole has three segments: adult secure
    corrections, juvenile corrections and community
    corrections.

    Companies do more than just manage prisons,
    though. Prison companies also offer construction, inmate
    health care, food service, education and training, and
    security monitoring. In the United States, only
    six
    major companies compete for the largest
    contracts.

    In 1999, new construction and contracting
    guidelines conspired to create a major slowdown in the
    number of contracts awarded. Industry
    experts expect
    the trend to reverse this year and predict a major
    procurement from the Federal Bureau of Prisons as prisoner
    populations increase.
    >
    Recently, Wackenhut and
    Cornell were awarded contracts to manage prisons in Texas
    and in
    Arizona, and more are pending.


    (continued in Part 2)

 
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