Unveiling CoreCivic (CXW)'s Value: Is It Really Priced Right? A Comprehensive Guide
On September 8, 2023, CoreCivic Inc (NYSE:CXW) recorded a daily loss of -4.62%, bringing its 3-month gain to 7.55%. With an Earnings Per Share (EPS) (EPS) of 1.03, the key question is whether the stock is fairly valued. This article provides an in-depth analysis of CoreCivic's valuation, encouraging investors to delve into the subsequent sections for a comprehensive understanding of the stock's worth.
Company Overview
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, contributing the majority of the company's revenue, operates approximately 50 facilities. The Community segment owns and operates nearly 30 residential reentry centers, while the Properties segment owns about 15 properties for lease to third parties and government agencies. CoreCivic operated as a Real Estate Investment Trust until January 2021 when it was reorganized as a taxable C Corporation.
With a current stock price of $10.11 per share and a market cap of $1.10 billion, CoreCivic's value can be compared to its GF Value of $9.78 to determine if the stock is overvalued, undervalued, or fairly priced.
Understanding GF Value
The GF Value is a proprietary metric that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line, displayed on our summary page, gives an overview of the fair value that the stock should ideally be traded at.
CoreCivic (NYSE:CXW) appears to be fairly valued based on the GF Value calculation. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth. If the price of a stock 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.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before deciding to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. CoreCivic has a cash-to-debt ratio of 0.04, which ranks worse than 92.9% of 1042 companies in the Business Services industry. Based on this, GuruFocus ranks CoreCivic's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. CoreCivic has been profitable 9 years over the past decade. Over the past twelve months, the company had a revenue of $1.90 billion and an Earnings Per Share (EPS) of $1.03. Its operating margin is 8.83%, which ranks better than 61.79% of 1039 companies in the Business Services industry. Overall, GuruFocus ranks the profitability of CoreCivic at 7 out of 10, which indicates fair profitability.
Growth is closely correlated with the long-term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of CoreCivic is -2.3%, which ranks worse than 68.74% of 979 companies in the Business Services industry. The 3-year average EBITDA growth rate is -3.9%, which ranks worse than 76.3% of 848 companies in the Business Services industry.
ROIC vs. WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, CoreCivic's ROIC is 4.18 while its WACC came in at 4.31.
Conclusion
Overall, CoreCivic (NYSE:CXW) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 76.3% of 848 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.
