CoreCivic (CXW): A Comprehensive Analysis of Its Market Value
CoreCivic Inc (NYSE:CXW) reported a daily gain of 5.26% and a 3-month gain of 17.36%. The company has an Earnings Per Share (EPS) of 1.03. Is the stock modestly overvalued? This article aims to answer this question by conducting a thorough valuation analysis of CoreCivic (NYSE:CXW). We invite you to read on for an in-depth exploration of the company's value.
Introduction to CoreCivic
CoreCivic Inc is a leading owner and operator of private prisons and detention centers in the United States. The company operates in three segments: Safety, Community, and Properties. The Safety segment operates about 50 facilities, the Community segment owns and operates nearly 30 residential reentry centers, and the Properties segment owns approximately 15 properties for lease to third parties and government agencies. CoreCivic's revenue primarily comes from the Safety segment, with federal, state, and local government agencies being its main customers.
Comparing the stock price of CoreCivic to its GF Value, an estimation of fair value, is a crucial step in understanding the company's intrinsic value. This comparison will pave the way for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. We believe the GF Value Line is the fair value at which the stock should be traded. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on the GuruFocus Value calculation, CoreCivic (NYSE:CXW) stock is believed to be modestly overvalued. The stock is currently priced at $11.2 per share, giving CoreCivic a market cap of $1.30 billion. Because CoreCivic is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
Financial Strength of CoreCivic
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to review the financial strength of a company before deciding to buy its stock. A great starting point for understanding a company's financial strength is looking at the cash-to-debt ratio and interest coverage. CoreCivic has a cash-to-debt ratio of 0.04, ranking it lower than 92.48% of 1051 companies in the Business Services industry. GuruFocus ranks the overall financial strength of CoreCivic at 5 out of 10, indicating fair financial strength.
Profitability and Growth of CoreCivic
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. CoreCivic has been profitable 9 out of the past 10 years. Over the past twelve months, the company had a revenue of $1.90 billion and Earnings Per Share (EPS) of $1.03. Its operating margin is 8.83%, ranking better than 61% of 1064 companies in the Business Services industry. The overall profitability of CoreCivic is ranked 7 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of CoreCivic is -2.3%, ranking it lower than 68.33% of 982 companies in the Business Services industry. The 3-year average EBITDA growth is -3.9%, ranking it lower than 76.38% of 851 companies in the Business Services industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital (ROIC) and the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, CoreCivic's ROIC is 4.18, and its WACC is 4.47.
Conclusion
In conclusion, the stock of CoreCivic (NYSE:CXW) is believed to be modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 76.38% of 851 companies in the Business Services industry. To learn more about CoreCivic stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
