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Corrections Corporation of America Message Board

  • Daniel_Raider Daniel_Raider Nov 2, 1999 1:55 PM Flag

    Another PZN Insider Purchase

    30-Sep-99
    MOORE JACKSON W (Director)
    Bought (P)
    1,269 Common 10.75 $13,641

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    • Another stock I have owned on and off (FEET)
      filed for bankruptcy today due to liquidity problems.
      Book Value was somewhere in the $9.00 range. I'm not
      making a direct comparison and am very long PZN, but
      thought it interesting that a stock with so much supposed
      book value could file for bankruptcy.

    • When I look at the issue of when PZN/OPCO taken
      as one entity will have sufficient cash flow to
      cover PZN's dividend, I find that there is insufficient
      disclosure on how the various fees are being accounted for
      to back out an accurate number from the financial
      statements.

      Largely because of this, I took some time and built a
      model "from the ground up" that looks at the number of
      CCA beds, the margin per bed, overhead expenses,
      interest expenses, contribution from the service
      companies, etc. to come at cash flow from a different
      angle.

      Obviously, this process involves a lot of assumptions and I
      will readily admit it is probably no more accurate
      than an educated guess on how the accounting works
      within the financial statements, but for what it is
      worth it showed that even with the poor occupancy at
      CCA in Q2, there was enough cash to support a $1.40
      annual dividend. If occupancy in Q3 turns out to be
      around 90% at CCA, then I think the numbers will show
      that a $1.60 dividend could be supported with no
      external financing.

      Unless PZN becomes extremely
      creative with its accounting, I do not think they will be
      able to get next year's dividend below about $1.80 on
      the current share base, a dividend level they will
      not earn in Q3. If PZN gets the FBOP beds and
      approaches 100% occupancy by early next year, then I think
      they will produce enough cash flow to pay next year's
      dividend, whatever it may turn out to be on a per share
      basis following potential dilution from an SI. If
      occupancy stays in the 90% range, then I think PZN will be
      generating enough cash flow to support the REIT minimum
      mandated dividend by the third or fourth quarter of next
      year.

    • It would really surprise me if PZN accepted an
      equity investment on very onerous terms. As we know, the
      Company can pay the special largely in paper so that it
      doesn't have to raise the equity. Why would they give it
      away below these prices when Doc and other insiders
      recently purchased shares north of these levels. The
      Company is on record as believing their stock is very
      cheap - why would they give it away? It's not like
      there is a gun pointed at their heads.

    • Did you see an announcement by PZN that PZN would pay the minimum dividend to maintain REIT status, or that PZN would pay at least the minimum necessary? There might be a big difference.

    • Regarding institutional investors, I'm not sure
      the new guys are the kind to stick with this company
      for very long. They represent an overhang that could
      be a problem in the future. CCA used to enjoy a
      stable long-term group of institutional owners. But many
      of them are gone, and more may follow.

    • To your first question, perhaps I'm being overly
      simplistic but I would think anytime you substitute dems for
      reps it's bad for privitization. Gore, in particular,
      is very outspoken in favor of unions. We've seen
      reports where legislation has been introduced in Congress
      (and gone nowhere) that would hurt PZN if enacted. I
      would be more concerned with Reps losing the House and
      Senate than with Gore getting in. Gore can be coralled
      by a Republican Congress.

      However, and I
      think this is very important, the next election will
      probably be a non issue because by then PZN will have
      either turned things around or we'll be a $9 stock. The
      next 12 to 18 months are of extreme importance to
      PZN/CCA.

      Rather than directly answer your second question, I'd be
      more comfortable saying that PZN has most definitely
      been hurt because of it's REIT status. I see many PZN
      Posters on other REIT boards and they see the carnage in
      this group. Some very good companies like CEI are
      being pounded into the ground.

      Kind of
      interesting if you think about it. Those that follow REITS
      know that those companies are all (correctly) blaming
      their stock price misfortunes on the lagging REIT
      industry. However, you don't see PZN whining about this
      most obvious point. Why? Simple. If doc were to admit
      the obvious (PZN has been hurt by pursuing REIT
      status) he'd have to answer the obvious question of why
      he doesn't simply give up pursuing REIT
      status.

      In his posts, MK has done a terrific job of
      explaining in very simple terms why the REIT status is
      totally flawed. I repeat what I said recently. You don't
      see any rebuttal to his logic because there is none.
      If there was, PZN would put it on this
      board.

      In a recent cc, doc mentioned the "Yahoo's on
      Yahoo!". Don't for a minute believe he doesn't consider
      the postings on this board. There are those of us
      who've been around for quite some time that are all but
      certain that a member of the BOD posted on this board a
      while back.

      If nothing else, we should have a
      very interesting shareholders meeting next year. I'll
      be there with my list of questions.

    • "I thought MK said that OPCO is supposed to break
      even at 95% occupancy and that's when the fees would
      stop. MK, did I get that correct?"

      I've heard
      that OPCO is break even at 95% of current capacity,
      but who knows what "break-even" means. I've never
      heard, though, that fees would stop at that point. I
      assume PZN would continue paying the fees as new
      facilities come on line. I also don't know if OPCO is paying
      lease fees for any of the empty facilities. Assume they
      must be at least for any facility where they have
      hired staff in anticipation of getting prisoners. Hell,
      there's so much I don't know that I'm starting to feel
      like cleo, or her alter-ego J. Litt.

    • I agree with you that PZN is hell-bent on the SI
      and that it will very likely happen. I'd rather see a
      reduction in the dividend and/or a cut in capital spending
      rather than wicked dilution. A popular misconception is
      that the SI evolved from PZN's bankers when in fact
      the idea was the result of PZN receiving inquiries
      from potential investors. If PZN can't find a way to
      get a potential investor to pay some sort of premium
      over $10 for a very large stake then that is bad news.

    • I only had a couple of hours sleep last night so
      my brain really isn't working at full capacity right
      now. But it seems to me that I have to throw water on
      your ideas about a share buyback being one of the
      better uses for PZN funds. In this case, IMO, it would
      have dubious value.

      You are assuming for each
      share of stock purchased, that such would reduce the
      amount of dividends that would be paid out by PZN, at a
      rate currently in excess of 20%. That is not the
      case.

      PZN has stated they will pay the minimum required
      dividends next year to maintain REIT status. So, this
      becomes more of a fixed amount for PZN. Whether this is
      spread over 100M shares or 150M shares it will only
      affect the yield to the shareholders, not the total
      dividend amount. So, a share buyback will help to increase
      the share price and yield to stockholders, it will
      not reduce PZN's amount to pay out. So such funds
      would better be used for other alternative uses that
      would bring in additional revenues in excess of debt
      costs.

      If I'm off base on this, please correct me. It may
      be one of those days when my brain tells me to only
      cut my pizza into 4 pieces instead of 8 because I'm
      not hungry enough to eat 8 pieces.

      Comments...

    • ...in your last two posts you have referred to a
      $9 stock paying $1.80/year in dividends. No wonder
      somebody today thought you were trying to depress the
      stock price, you ... pessimist, you!
      <g>

      If I was sure that in 2010, PZN's market price would
      be $9, and that in the meantime I'd collected $18 in
      dividends, I'd buy a hundred thousand shares or so
      tommorrow! THROW me into that briar patch!

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