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September 23, 2010

"Jailhouse Stocks Slip as Trends Shift"

The title of this post is the headline of this notable piece from The Street, which provides a market-based perspective on the private prison industry.  Here are excerpts:

Corrections Corp. of America (CXW) and Geo Group (GEO), the largest U.S. prison operators with a combined 86% market share, have long been touted as ironclad investments based on two trends: the rising prison population and government outsourcing of penal services. But those companies' lock on the industry is loosening.

The Federal Bureau of Investigation last week reported that violent crimes fell 6.1% in 2009, the third consecutive year of declines in such crimes, the type that most frequently contribute to lengthy jail sentences. Also in 2009, the state prison population dropped for the first time in 38 years, by 0.3%. While small, that came as a surprise, given the eightfold increase between 1972 and 2008, the Pew Center on the States reported.

Criminologists cite a variety of reasons for the trends: an aging population, the recession and judges' increasing willingness to seek alternatives to prison sentences, such as putting non-violent offenders on probation, releasing well-behaved prisoners earlier than required under sentencing guidelines, or giving some home detention and equipping them with ankle bracelets for monitoring.

Those factors keep a lid on growth in the prison population, which bodes poorly for the private-prison industry. That's already showing up in the numbers....

Still, some analysts give Corrections Corp. of America and Geo high marks, primarily based on the expectation that government entities will increasingly outsource detention services as cost-effective alternatives to making the huge investment it takes to build new prisons and staff them.

Barclays Capital analyst Manav Patnaik, who has "buy" ratings on both firms, said in a recent research report that state prisons still anticipate their inmate populations will grow. And only four states have authorized funding for new prison construction next year, and none acted upon it, suggesting demand for new private-prison housing will continue.

September 23, 2010 at 05:52 PM | Permalink

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Comments

The "buy" rating is a little dubious. At this point only immigration detention is propping them up. The Geo Group in particular is leveraged out the wazoo and has been losing contracts in Texas right and left.

Posted by: Gritsforbreakfast | Sep 23, 2010 10:28:08 PM

It was nothing short of appalling when corporate America turned the incarceration of human beings into a for-profit business.

And who's to say the profit motive (and subsequent development of powerful unions of criminal justice workers) hasn't played a significant role in the hyper-criminalization of social and economic activities that has packed existing prisons and compelled the building of new ones?

If there's any justice in this world or the next, all these grubbing, soulless money changers will go flat broke and the corrupt politicians who did their bidding will burn in hell. (As a non-believer, it's circumstances like this that make me wish heaven and hell actually did exist).

Posted by: John K | Sep 24, 2010 8:45:39 AM

Prediction: A groundswell of "grassroots" support for a new wave of get tough legislation, with organizations with fun names like "Citizens for Justice" and "Victims' Rights Network" leading the charge, conveniently funded by Geo and Corrections Corp. Hooray for Citizens United.

Posted by: T.O. | Sep 24, 2010 9:34:13 AM

If I were a proactive investor instead of just putting $$ into a 10-K managed by others, I'd be looking to short-sell Geo right now. I haven't looked at a CCA's corporate reporting as closely, but they're also highly leveraged and a bunch of their key contracts are up soon, particularly in Texas where the chair of the TX Senate Criminal Justice Committee recently named a CCA facility as a likely candidate for closure because of security concerns.

Posted by: Gritsforbreakfast | Sep 24, 2010 9:44:12 AM

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