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CORRECTED-OFFICIAL-DoJ decision on private prisons not “death sentence” – analysts

CORRECTED-OFFICIAL-DoJ decision on private prisons not “death sentence” – analystsCORRECTED-OFFICIAL-DoJ decision on private prisons not “death sentence” – analysts

(Corrects paragraph 9 to say GEO’s contract expires on Sept.
30, 2020, not Sept. 30, 2022, after the company clarifies)

Aug 19 Shares of private prison operators Geo
Group Inc and Corrections Corp of America rose
in premarket trading on Friday, a day after losing more than a
third of their market value following the U.S. Department of
Justice’s (DoJ) plans to phase out use of privately operated
prisons.

Corrections Corp’s shares rose 9.6 percent to $19.26, while
GEO Group’s stock gained 8 percent to $21.10

The U.S. Justice Department on Thursday directed the Bureau
of Prisons (BOP) to gradually phase out private prison operators
by letting contracts expire or by scaling them back to a level
consistent with recent declines in the U.S. prison population.

“This policy shift is undeniably negative for the
publicly-traded for-profit prison companies but it is far from a
death sentence,” Compass Point LLC analyst Isaac Boltansky wrote
in a note.

Analysts also said the impact on the companies was limited
as the DoJ’s decision pertained only to the BOP and not to other
federal bodies, such as the U.S. Marshals and the U.S.
Immigration and Customs Enforcement, and state and local
jurisdictions.

“The massive falloffs in the stocks imply that the risk will
spread to other federal, state and local jurisdictions. While
this is possible, we believe it is unlikely,” Canaccord Genuity
analyst Ryan Meliker wrote.

Meliker said there was no actual risk to the companies’ cash
flows. He has a “buy” rating on Geo Group and “hold” on
Corrections Corp.

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Corrections Corp has said that contracts with the BOP
represented only about 7 percent of its annual revenue. For GEO
Group, such contracts accounted for about 16 percent of revenue
last year.

GEO Group said on Friday the BOP had renewed its contract
for the D. Ray James Correctional Facility in Folkston, Georgia
through Sept. 30, 2018. The contract, which is effective through
Sept. 30, 2020, is up for renewal every two or three years.

Up to Wednesday’s close, Corrections Corp shares had risen
14 percent this year, while GEO’s stock had lost 1.2 percent. (Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by
Sriraj Kalluvila)

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