COMPANIES THAT RUN PRISONS MAY BE POISED FOR A BREAKOUT Part 2 By Brian Edwards and Jill Ward
Chicago Tribune Sept. 6, 2000
One of the industry's biggest hurdles has been its need for capital. Offender management companies historically need $2 in capital for each $1 in revenue for privately owned prisons, and capital has been very hard to find lately, says analyst James Macdonald of Chicago-based
First Analysis Securities.
That's compounded by the fact that while 80 percent of new prison projects require private money,only 20 percent succeeded in finding that funding. Prison Realty Trust, along with its parent company, Corrections Corp. of America(CCA), controls 50 percent of the market share, but the company is troubled.
The fiasco began in 1997,when CCA got rid of its real estate assets through an initial public offering of a real estate investment trust (REIT), naming the new company CCA Prison Realty Trust. Investors loved the business structure of REITs, and the stock did very well. But CCA stock plummeted, and management decided to buy back the new company. Activist investor groups cried conflict of interest, turning the situation into the corporate equivalent of a prison riot.
Restructuring is ongoing at Prison Realty. In June, the company announced it plans to merge CCA into a wholly owned subsidiary of Prison Realty Trust and drop its REIT status. Macdonald rates the stock as a "hold," noting that lingering questions have cast a shadow over Prison Realty Trust's future. > > The outlook for Wackenhut is better, according to Macdonald, but the company's long-standing clean record was recently marred due to bad press over several inmate killings and other problems in New Mexico. To neutralize these problems, Wackenhut has been spending to improve operations. This, combined with higher insurance costs, has reduced earnings, which are expected to be flat in 2000. Still, Macdonald rates it as a "strong buy."
"Wackenhut has very good management and the most financial flexibility," Macdonald said. "It's a very conservatively run facility, and I expect very good growth."
Cornell Companies, which seemed to have weathered 1999 better than the rest of the companies, still faces problems. The company is fully leveraged with debt, and the shortage of capital has slowed its acquisition strategy.
However, Macdonald noted Cornell holds a $200 million portfolio of real estate that may support a sale-leaseback transaction, where it could raise capital by selling its owned property to other buyers who would then lease the property back to Cornell. Cornell also recently signed a three-year management contract in New Mexico.
> Macdonald says that Cornell has good management and is smaller, so it can grow faster. He likes the fact that the company operates in several different sectors -- adult, juvenile and halfway houses -- so it can grow without heavy capital investment. He currently rates the company as a "strong buy."
"On the downside, it is very highly leveraged," he said. "On the good side, Cornell owns its own real estate and is selling at less than the value of its properties."
Other companies involved in the corrections industry include Correctional Properties Trust (NYSE: CPV), Res-Care, Inc. (Nasdaq:RSCR) and Children's Comprehensive Services, Inc. (Nasdaq: KIDS).
Correctional Properties Trust acquires correctional and detention facilities from both private prisons and governmental organizations, forming a REIT. Res-Care, Inc. has two divisions: one that serves the disabled and one that works with at-risk and troubled youths. Children's Comprehensive Services and its subsidiaries work with government organizations to provide a variety of services to troubled youth.
Of the three, Macdonald believes the outlook for Correctional Properties Trust is the most favorable.
Thanks for news post. Everything looks good for WHC right now. The fundamentals, the news, the financials, and the chart. The technical analysts would report the following:
1. Moving Average Convergence/Divergence (MACD) indicates a Bullish Trend. 2. Chart pattern indicates a Strong Upward Trend. 3. Relative Strength (77%) is Bullish. 4. Up/Down volume pattern indicates that the stock is under Accumulation. 5. The 50 day Moving Average is rising which is Bullish. 6. The 200 day Moving Average is flat, but if it starts to rise, look out above! 7. Look for Support at 8.93
Very nice article you found and posted GOPRIVATE 2000 (hmmm, what a name like that, I`m wondering how you really feel about this company?). The problem is I`m sure this "strong buy" rating will cause a plunge in price tomorrow. WHC aka P.O.S. doesn`t like good news, us oldtimers (longs) know that. Last weeks BUSINESS WEEKS article (as sucky as it was), actually caused a slight increase in price. This weeks CHICAGO TRIBUNE article (as pleasant as it was), will sure cause a crash.
MANBO - Nice to see you are still the guru of the board after all these years. I envy your patience and wonder who is supplying you with your endless supply of valiums?
EASILYCONFUSED - I`m sure you still jump in and our of here to read these posts, so a quick "hello" to you. YES, I`m still in, and I`m still chanting ...... just get me to 14 ..... just get me to 14 .... just get me to 14.
Peter, good to hear from you, those days are over, this company has survived a great deal of adversity. Since June 13th. has started on a long term upwards move good to have you on board. Yes Peter was not eassy to sit back and watch the events and troubles unfold, as my losses mounted. As a matter of fact at times felt a little disturbed. This no longer Infant industry, now seat back and watch the pendulum swing back the other way double your position, and make you some eassy money.....(smiles).