MSN Money - 3 prison stocks poised to break out
MSN Money - 3 prison stocks poised to break out
Company Focus
3 prison stocks poised to break out
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Thanks in part to overcrowding, governments are turning to private companies to build and manage prisons. Here's how to pick the right time to buy into the trend.
By Michael Brush
In what might be a revealing commentary on our country's state of affairs, the nation's private prison companies look like solid investments for the next several years.
The three big prison companies -- Corrections Corp. of America (CXW, news, msgs), The Geo Group (GGI, news, msgs) and even the troubled Cornell Cos. (CRN, news, msgs) -- have decent growth prospects for the following reasons.
* Increased border patrols. The Intelligence Reform and Terrorism Prevention Act of 2004, signed by the president in December, calls for stepped up border patrols to improve domestic security. This makes it likely that more illegal immigrants will be caught. Lawmakers estimate that by 2010 the Bureau of Immigration and Customs Enforcement (ICE) will need another 40,000 prison "beds," as they say in the business.
* Governments are hard up for cash. "Because of tight budgets, there has not been a lot of new prison construction," says Irving Lingo, Corrections Corp. of America's finance chief. Instead, state and federal prison systems turn to private companies that build and manage prisons. In the 2005 federal budget, for example, Congress cut prison construction spending by 48%, says Patrick Swindle, an analyst who covers the sector for the brokerage Avondale Partners. Government prison systems turn to the private sector in part because costs are 10% to 15% lower.
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* Government prisons are overcrowded and the prison population will keep growing. "Federal prisons are at 33% overcapacity, and more than half the states are at overcapacity," says Swindle. "There is a scarcity of beds, and companies in the private prison space are being asked to meet the demand."
Demand should pick up over the next decade for a simple demographic reason. The children of baby boomers, the so-called echo boom, are about to enter the 18- to 24-year old age group -- the years when people commit the most crimes. The Federal Bureau of Prisons estimates it will have a 36,000 bed shortfall by 2010, partly due to this trend.
The big-fish theory
These numbers may not seem like much. But it's a big deal for the tiny private prison sector, which houses only around 7% of the 2.1 million people in prison in the United States.
To see why, let's take a closer look at some numbers. The two federal agencies, ICE and FBP, will need 76,000 new prison slots over the next five years. That alone is more than the number of beds now run by the biggest private prison company, Corrections Corp., which houses about 70,000 inmates. And it doesn't even include increases in demand expected at the state level.
So what does this mean in layman's terms? It means that the federal government stands to profit from the incarceration of poor and middleclass Americans. Oh friends, the writing's on the wall! Take your children and your pets. Flee this country while the borders are still open! They won't be happy till we're all incarcerated or under some kind of government restrictions.
Company Focus
3 prison stocks poised to break out
advertisement
Thanks in part to overcrowding, governments are turning to private companies to build and manage prisons. Here's how to pick the right time to buy into the trend.
By Michael Brush
In what might be a revealing commentary on our country's state of affairs, the nation's private prison companies look like solid investments for the next several years.
The three big prison companies -- Corrections Corp. of America (CXW, news, msgs), The Geo Group (GGI, news, msgs) and even the troubled Cornell Cos. (CRN, news, msgs) -- have decent growth prospects for the following reasons.
* Increased border patrols. The Intelligence Reform and Terrorism Prevention Act of 2004, signed by the president in December, calls for stepped up border patrols to improve domestic security. This makes it likely that more illegal immigrants will be caught. Lawmakers estimate that by 2010 the Bureau of Immigration and Customs Enforcement (ICE) will need another 40,000 prison "beds," as they say in the business.
* Governments are hard up for cash. "Because of tight budgets, there has not been a lot of new prison construction," says Irving Lingo, Corrections Corp. of America's finance chief. Instead, state and federal prison systems turn to private companies that build and manage prisons. In the 2005 federal budget, for example, Congress cut prison construction spending by 48%, says Patrick Swindle, an analyst who covers the sector for the brokerage Avondale Partners. Government prison systems turn to the private sector in part because costs are 10% to 15% lower.
Start investing with $100.
Explore our
new ETF center.
* Government prisons are overcrowded and the prison population will keep growing. "Federal prisons are at 33% overcapacity, and more than half the states are at overcapacity," says Swindle. "There is a scarcity of beds, and companies in the private prison space are being asked to meet the demand."
Demand should pick up over the next decade for a simple demographic reason. The children of baby boomers, the so-called echo boom, are about to enter the 18- to 24-year old age group -- the years when people commit the most crimes. The Federal Bureau of Prisons estimates it will have a 36,000 bed shortfall by 2010, partly due to this trend.
The big-fish theory
These numbers may not seem like much. But it's a big deal for the tiny private prison sector, which houses only around 7% of the 2.1 million people in prison in the United States.
To see why, let's take a closer look at some numbers. The two federal agencies, ICE and FBP, will need 76,000 new prison slots over the next five years. That alone is more than the number of beds now run by the biggest private prison company, Corrections Corp., which houses about 70,000 inmates. And it doesn't even include increases in demand expected at the state level.
So what does this mean in layman's terms? It means that the federal government stands to profit from the incarceration of poor and middleclass Americans. Oh friends, the writing's on the wall! Take your children and your pets. Flee this country while the borders are still open! They won't be happy till we're all incarcerated or under some kind of government restrictions.
posted by ShadowHawk at 3:21 PM
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