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Geo Group Inc The (GEO) Hits Fresh High: Is There Still Room to Run?

Have you been paying attention to shares of Geo Group (GEO)? Shares have been on the move with the stock up 8.3% over the past month. The stock hit a new 52-week high of $9.73 in the previous session. Geo Group has gained 20.7% since the start of the year compared to the -12.2% move for the Zacks Finance sector and the -23.4% return for the Zacks REIT and Equity Trust - Other industry.

What's Driving the Outperformance?

The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on October 27, 2022, Geo Group reported EPS of $0.26 versus consensus estimate of $0.56 while it beat the consensus revenue estimate by 1.79%.

For the current fiscal year, Geo Group is expected to post earnings of $2.47 per share on $2.36 billion in revenues. This represents a -0.4% change in EPS on a 4.43% change in revenues. For the next fiscal year, the company is expected to earn $2.31 per share on $2.46 billion in revenues. This represents a year-over-year change of -6.48% and 4.33%, respectively.

Valuation Metrics

Geo Group may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Geo Group has a Value Score of A. The stock's Growth and Momentum Scores are B and D, respectively, giving the company a VGM Score of A.

In terms of its value breakdown, the stock currently trades at 3.8X current fiscal year EPS estimates, which is not in-line with the peer industry average of 12X. On a trailing cash flow basis, the stock currently trades at 3.8X versus its peer group's average of 12.6X. Additionally, the stock has a PEG ratio of 0.38. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Geo Group currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Geo Group fits the bill. Thus, it seems as though Geo Group shares could still be poised for more gains ahead.

How Does GEO Stack Up to the Competition?

Shares of GEO have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is Chatham Lodging Trust REIT (CLDT). CLDT has a Zacks Rank of # 2 (Buy) and a Value Score of B, a Growth Score of A, and a Momentum Score of D.

Earnings were strong last quarter. Chatham Lodging Trust REIT beat our consensus estimate by 19.05%, and for the current fiscal year, CLDT is expected to post earnings of $1.44 per share on revenue of $292.31 million.

Shares of Chatham Lodging Trust REIT have gained 6.8% over the past month, and currently trade at a forward P/E of 10.79X and a P/CF of 16.35X.

The REIT and Equity Trust - Other industry may rank in the bottom 61% of all the industries we have in our universe, but there still looks like there are some nice tailwinds for GEO and CLDT, even beyond their own solid fundamental situation.

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