to stikninrose2000, There is one shining good
example to look at. I invest in most of the corrections
stocks, and was surprised to see that most of them took
bonuses in 1999 in spite of dropping stock prices. The
one EXCEPTION to this was CRN, which looks like the
only one of the companies consistently growing EPS
without any surprises. Even though CRN posted 30 or 40%
EPS growth, NOT A SINGLE OFFICER TOOK A BONUS IN
1999!!! It's good to see a business-minded good company
that puts itself with its shareholders.
like most stocks in this industry at these prices,
that is why I hold most of my corrections stocks in
prison sector has been down for the past 12-24
months is about 90% related to the WallStreet problems
from PZN. PZN's going into/out of REIT, etc. has taken
everyone's eye off the ball as to why they invested in this
industry to start with (i.e. strong fundamentals with very
visable earnings growth of 20+% for many years, etc.).
The other 10% has been from bad press, which although
there are escapes in public prisons too, you only seem
to hear about the ones from a private
I own, and have for along time, almost all the
private corrections stocks. We have a nice oppurtunity
now with everyone flying into Tech (although that's a
good place to be, but someday that bubble will burst),
and they've let this sector get beaten down way below
where they should be.
IMHO, the ranking of the
best stocks to own are the following:
CRN: CRN looks to have the best all around management
team in the business. They have a very sharp business,
financial and operational team, and alot of talent in the
field. They also cover a broader span of revenues
through their 3 divisions (prisons, halfway houses and
juveniles). CRN is just about the only one that has given
extremely strong EPS growth without any surprise charges
ever year or so. CRN is also the only one who owns a
large portfolio of real estate, but they need to sell
it to get rid of some of their debt (I think they
are/have been working on this).
#2 -- WHC: WHC has
a large market share being the #2 in the business,
and seems to have alot of resources in their parent
company (WAK). They have a strong international presence.
The main complaint with WHC is that they seem to
low-ball new projects, which the #2 player shouldn't be
doing, and while they have some very talented people,
some (not all by any means) of their top exec's are
not preceived to be that strong.
#3 -- CSCQ:
They also have a broad revenue stream and have been
beaten down like the rest. However, these guys always
seem to come up with a "one-time" charge every year or
two, and their top exec's don't have a good reputation
in many circles. However, they do have alot of
contracts...they just need to put more power into the field
personnel to improve programs,etc.
#4 -- PZN: it
seems odd to put the biggest as last, and although
their #1 market position is very compelling, their top
management team has lost all credibility with everyone. The
new investor group is interesting, but still too many
unknowns. There is alot of upside here, but the lawsuits
that are bound to come from their actions will be a
Basically, everyone in this group is beaten down far below
where they should be (so you probably won't go wrong
with any of them). However, my ranking of the above
is, IMHO, the choice of where to put the most of your
money respectively, because to make the "real money",
it will be the top companies above that will really
break out of the pack .... and when this industry does
come back, I think it will be in a big way.
you're willing to weather some ups and downs, these are
great investments for both the short term and long
is not a great state for the privates, however, I
disagree with your comment that the regulatory bodies are
driving privatization into the ground. Texas' issue is
that there are too many inmates and not enough funds,
combined with some small companies (like MTC) that will
still bid low.
However, there are few states
that are doing this, and there is just the opposite in
the Federal area. The Federal business is booming in
the private market, and all estimates are that it
will only get stronger. The Federal business looks
more to quality vs low price, and the recent Federal
contracts (with per diems in the $80's) points to
I do agree that the privates need a much more
concentrated effort on the legislative front vs each of them
doing it on their own, but I think that will
Don't let Texas confuse the issue...in the end, this is
a service that MUST be done, and the privates can
do it more cost effectively...we just need to get
the small guys to stop bidding low in Texas, but that
will pass soon...in the meantime ... go Feds!!
I would not call him the industry. Doc did great
things to get this industry going...he was out there in
the beginning when nobody cared about the industry
(unfortunately, a little of what we see today). However, over the
past 5 or 6 years, this business, like other new
industries, has become "more professional", which has spawned
several professional private prison management companies
(WHC and CRN included).
I think Doc's style of
doing what he wants, regardless of what people think is
one of the things that helped him in the early days,
but it has been part of what has brought him down
now. His moving on should be viewed positively as one
further step in the professional progression of this
relatively new industry.
The industry fundamentals
are still very strong. A new professional management
team (like WHC and CRN has done) is a positive step to
the sustainable growth of this business.
wish Doc well; he previously did alot for this
industry, but it's time to move on.
only filed a $350 million Shelf filing. Shelf
filings don't mean much, but are typically a tool to keep
in reserve to be used over the next several
As far as ROE and debt levels in this industry
(regardless of whether it's PZN, WHC or CRN), you need to
look at the visible contracted earnings (i.e. which is
typically 12 or more months in the future) and compare it
to current equity and debt levels. Basically, this
industry has to borrow debt and issue equity today for a
"contracted" award, which will generate contracted profits,
but only after the facility is built. On a run-rate
basis, these companies typically have a 30%-50%
improvement over the current ROE levels. This will give a
better apples-to-apples comparison.
said, debt levels are something that this industry will
need to deal with, expecially until the equity prices
get better (and IMHO, they will get better after
yearend). I think you will see more sale leaseback
transactions, and possibly an increased use of REITS (which
should be good for PZN and CPV --- if they can raise the
$$), and an increased use of municipal
Prison REITs are a good idea (i.e. a very stable tenant,
regardless of the economy, etc), however, IMHO, PZN must
change it's management in order to restore credibility
to the company.
WallStreetBlues ... what contracts are you
referring to that OPCO has lost lately? Other than a couple
of small contracts (mostly in Texas) that CCA has
walked away from (because of low margins, etc. --- which
is positive), I'm not aware of CCA losing any
...of PZN's management with the potential of the
industry. No question that PZN's management have destroyed
their credibility, but the corrections industry
(private) is one of the few industries that, fundamentally,
will go on long after we are all around to care about
PZN's organizational structure and management issues
will work itself out; when the dust settles, the
credible players in the industry should again receive the
positive consideration it deserves.
IMHO, there is
plenty more to be made here. Like I've said before, the
"fundamentals" of this business haven't changed...and after the
dot-coms lose their luster, people will again focus on the
private corrections' positive fundamantals (hopefully Doc
and crew will be long gone by then, replaced with a
credible management team).
Reasonable point given this odd 1999 year. I
definately made more money on CRN than WHC, but I've been
investing in this business since the mid-90's, and there
have been many up/down movements in these stocks since
then. I've been in and out of all of them, made the
most $$ on CRN, and most of the $$ I made in WHC was
before 1998, but there are still good opportunities. I
own mostly CRN now, with a little still spread in the
... about WHC and CRN is that they both have
significant contracted backlog and a small outstanding share
base. This translates into good/higher future EPS
visabiliity than PZN has (and neither has "management" issues
that PZN has). In addition, WHC has international
business and CRN has access to three funding sources
(prisons, juveniles and treatment/halfway
I've been long on CRN and WHC for awhile; made money
on both, and feel good that 2000 will be a good year
for them after this PZN smoke clears.
Shareholder Rights Plans are one of the most
common things around. They are there because management
is in the best position to evaluate an offer (i.e.
management knows of inside information that the outside
investor doesn't, etc.). It does not take away
management's fiduciary obligations to look at bonified
Typically, a plan like this will result in a higher price
being paid for a company in a take-over situation,
because it allows management to bring the suitor to the
table to negotiate (and base the negotiations on the
IMHO, This should not be
viewed negatively, and is a positive in most situations.
It just means that someone cannot manipulate the
stock and swoop in and purchase the company at a less
than optimum price.
as to what is going on and should you hold or
sell is addressed in Message #820 on WHC's
However, it only answers some of your question
(InvestorFormerlyKnownasRookie). If you have a couple of days, you can also sort
through the many massages on this board (although many
are clearly emotionally driven).
... in the stock market is to focus on the
fundamentals of why you originally got interested in a stock
(and whether those fundamentals have changed), and to
not let emotions come into play.
corrections industry still has very strong fundamentals and
some very good companies (WHC and CRN IMHO are the
best). These stocks have been hurt by many things (none
of which are fundamantal changes in the industry
though), with one of the biggest problems coming from
management issues at PZN and PZN's REIT/OPCO
Many other industries have gone through cycles (Oil
and Gas, Financial Institutions, etc.), only to
recover many times over. The bottom line is that the need
for housing inmates and various treatment methods
needed for them will, unfortunately, never go away. This
is a function that MUST be performed, and the
private sector can do it as well as (and sometimes
better) as the public sector and save taxpayers $$$. At
the end of the day, that's what gets votes (i.e.
tough on crime AND saving tax dollars), and the shear
strength of the fundamentals will remain strong. The only
question is which companies will prosper the best ... but
this industry has so much growth that there is plenty
of room for several successful players.
down cycles are great times to let the sheep run away,
while we average down and wait for the inevitable
I'm long on WHC and CRN ... I'd keep an eye on both
I doubt that Georgia would cancel any contract
with the privates due to price. The State of Georgia
estimates their own per diem cost to be in the high $50's;
PZN/CCA's rate is in the mid 40's and the other private
provider in Georgia, CRN, is in either the high 30's or
low 40's. Either way, the privates' costs are
significantly lower than the State, and Georgia has stated they
need the bed space.
I'd guess that if there was
any truth to PZN/CCA not renewing the Georgia
contract, it would be because PZN/CCA had another source of
inmates in mind. I hear that Georgia can be difficult to
deal with sometimes.
Private operators do not, and are not allowed to,
perform executions. Privates don't want the legal
liability nor the "loss of revenue" from one less
If there is an execution, it will be done at a State
facility and performed by the State.
DreamMaster ... thanks for the 10-Q quotes, it
looks like CRN has alot of growth. I'm still not sure
about your comment on Big Spring ... Big Spring either
counts for 25% of beds "in operation" as you put it, or
15% based on contracted beds. CRN's last 10-K
indicated this is a Federal facility with over a 10-year
Were you trying to make a point with your comments on
Big Spring and the variable interest
But either way, I'm glad it's "crystal clear" to you.
Manboking, your facts on CRN seem to be abit odd.
You mention they have a bulk of their facilities in
Big Spring, are a secondary stock, etc.
the last press release I saw from CRN indicated they
had 56 facilities in 12 states + DC, with over 13,000
beds (only about 2000 +/- were in Big Spring)?
addition, while CRN has accumulated some debt (I wouldn't
call it "loaded" though), they have more Real Estate
$$$ than any others (even more than WHC used to start
it's REIT/CPV). One reason WHC paid down it's debt is
from their sale of real estate to its REIT; I'd guess
that CRN will eventually sell its real estate and
realize a similiar debt paydown. With a smaller share
base, CRN seems to grow at a faster EPS % than the
others (although the others grow at a healthy rate
I do agree with your point that disturbances at
prisons go with the territory, and the pressure on all
the corrections stocks (PZN, WHC, CRN, etc) seems to
be more media-hype related, and not due to any
fundamental changes in the corrections industry.
still Long on this entire industry.
While what happened to the guard is a tragedy,
people seem to forget that the rate of incidents are far
greater in non-private facilities...it's just that any
incident at a private facility gets splashed all over the
The harsh fact is that all this news, etc. hasn't
changed the strong fundamentals of this industry at all.
This industry has strong predictable revenue/earnings
stream, and the incidents unfortunately will
happen.....but it doesn't change the strong prospects of private
If you're a long-term investor in this industry
(regardless of which company ... WHC, CRN, PZN, etc), this
should be a buying oppurtunity.
SunTrust Equitable Securities (STE) has been
following the Private Corrections industry longer than any
other firm I am aware of. STE had/has a dedicated
"private corrections" group (i.e. vs most other firms that
cover PZN,CRN,WHC,CPV, etc within the Special
Situations Group. Brian Ruttenbur is/was the analyst at STE,
and he seems to have built a strong analyst group
there. It's not unusual for STE to have been on these
companies' offering cover since STE is very knowledgable of
the industry. I believe Legg Mason has done most of
Although the Private Corrections
Industry still lacks sufficient coverage/exposure, that
should take care of itself in time since the growth
fundamentals of this industry keep getting stronger. There are
currently about 6-8 firms covering the industry, with STE
being one of the first.
Hope this helps. Good