The Real Cost of Prisons Weblog

Cornell Companies shares have gained about 19% in value this year, but other prison operators aren’t faring as well: larger competitors Corrections Corp. of America (NYSE:CXW) and Geo Group (NYSE:GEO) are down 11% and 15%, respectively.

Two analysts surveyed by Thomson Reuters have Cornell Companies rated “outperform,” although a third, Cooley May of Macquarie Research Equities (USA), issued a “neutral” rating and a $24 price target. The Thomson Reuters median price target is $31.

Kevin Campbell, senior analyst with Avondale Partners, raised his price target Aug. 11 to $31 from $28, while keeping his rating at “market outperform.” In a telephone interview, he noted that privately operated prisons are likely to continue to gain favor, and that Cornell has a strong pipeline for growth.
Click here to find out more!

“There is a big disconnect between the supply of beds and the demand for beds,” Campbell said. “State prisons are operating at about 105% of capacity, and federal facilities are at 137% of capacity.” And with more than 2.3 million Americans incarcerated, Campbell said, “Given the current economic environment … it’s difficult to justify building more prisons if your other services, such as healthcare, have to suffer.”

Cornell operates three business units: adult secure services (corrections), Abraxas Youth & Family services (juvenile rehabilitation and treatment) and adult community-based services (handling parolees and probationers). The company has 71 facilities in 15 states with 18,550 beds — many with long-term contracts — but operates correctional facilities in only five states. It has expanded two prisons recently, and has a 1,250-bed men’s facility under construction in Colorado.

For the three months ended June 30, Cornell beat expectations and its own guidance, reporting 3.4% revenue growth to $94.6 million, with net income rising to $5.3 million, or $0.36 a share, compared with $3.4 million, or $0.24 a share, in the same quarter last year. Cornell issued guidance for the current quarter calling for earnings per share of $0.29 to $0.33 per share, and $0.37 to $0.41 per share in the fourth quarter.

James E. Hyman, Cornell's chairman, president and chief executive, arrived in 2005. A turnaround specialist, Hyman was brought in to spruce up Cornell for possible sale, The revitalized company became a takeover target in 2007, but shareholders rejected an $18.25-a-share offer from Veritas Capital — a wise decision in light of the current stock price.

In mid- 2007, U.S. Immigration and Customs Enforcement pulled 600 detainees from an Albuquerque, N.M., facility operated by Cornell over safety and health concerns. It appears that after making changes, Cornell could regain the ICE contract this year.

When combined with an era of state and local government budgets stretched thin, for companies such as Cornell, crime does pay.
http://www.smallcapinvestor.com/stockresearch/spotlight/2008-09-12-570197ce24