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July 19, 2006
Geo Group Stock Soars on Revised Forecast
Prison firm's stock soars on revised forecast
By Stephen Pounds, Palm Beach Post Staff Writer
Wednesday, July 19, 2006 http://www.palmbeachpost.com/business/content/business/epaper/2006/07/19/a1d_geogroup_0719.
html
Shares in The Geo Group Inc. soared almost 19 percent Tuesday after the
company revised its revenue and earnings forecast upward for the second
time since May.
The Boca Raton-based builder and manager of federal, state and local
prisons bumped its second-quarter earnings expectations to 67 to 70 cents
a share from its revised forecast of June 19, when it said it would make
55 to 58 cents a share.
Its new revenue projections rose to $205 million to $210 million, from
$185 million to $190 million, for the same quarter. For the year, the
earnings forecast increased to $2.04 to $2.14 a share, from $1.91 to $2.01
a share, with revenue rising to $790 million to $805 million, from $770
million to $785 million.
The increases are based on three factors: revised start-up expenses for a
198-bed immigration center in Kidlington, England; discontinued
immigration operations in Australia; and new construction spending at two
prisons in Florida, the company said.
A 1,500-bed prison is being built in Graceville in Florida's Panhandle,
and its prison at Moore Haven in Glades County is being expanded to
include high-security prisoners, Geo said. It had been built for
medium-security inmates.
The Moore Haven expansion will completed by the first quarter of 2007; the
Graceville prison will be completed in the third quarter of that year, Geo
spokesman Pablo Paez said Tuesday.
Shares in Geo (NYSE: GGI) jumped $6.19 a share, or 18.7 percent, on the
news, to close at $39.24. The stock traded at eight times its normal
volume.
"The stock is reacting to the updated guidance," Paez said. "We've had a
strong first half, and that's primarily attributable to higher occupancy
at a number of facilities."
Still, of the $20 million in additional revenue, $17 million will pass
through Geo to builders that actually complete prison construction. Only
$3 million is attributable to increased occupancy.
Investors, however, pushed the stock up because demand for new prison beds
has spiked, said Lehman Brothers analyst Jeff Kessler.
"With industry demand for prisons at a high, we remain confident of the
growth prospects of GGI," Kessler wrote in a report Tuesday to investors.
Private prison operators are keeping a close eye on the Bush
administration's attempts to secure the nation's borders and end "catch
and release" — ticketing and freeing people in the United States illegally
instead of detaining them — a practice the White House maintains results
from lack of detention space to hold illegal immigrants awaiting legal
action.
In late May, the Homeland Security Department's inspector general, Richard
Skinner, said the government needs nearly 35,000 more jail beds to
effectively end the criticized "catch and release" program. Analysts
expect a majority of the bed-space expansion to be contracted to private
prison operators such as Geo.
"What many investors may not have focused on is the dramatic increases in
funding being given to two federal agencies for increased border
enforcement," Kessler said.
Posted by lois at July 19, 2006 08:40 PM