Corrections Corporation of America (CXW), one of the largest operators of prisons in the United States, has surprised on estimates 3 out of the last 4 quarters by an average of 4.61%. Revenue grew 6.5% in the first quarter.
Company Description
Corrections Corporation of America (“CCA”) is the largest operator of correctional and detention facilities in the United States. Only the federal government and three states are larger prison operators.
The company operates 64 facilities, with 44 of those being company owned. It has a total design capacity of about 86,000 beds in 19 states and the District of Columbia.
CCA also operates educational and rehabilitation programs as well as providing health care and food services within the correctional facilities.
Revenue Climbed 6.5% in the First Quarter
On May 7, CCA reported first quarter 2009 results that surprised on analysts’ estimates by 11.54%. Earnings per share were 29 cents compared to Wall Street estimates of 26 cents per share.
Revenue rose 6.5% to $404.2 million from $379.4 million during the year ago quarter. Total compensated man-days increased 3%. The average inmate population gained 4.2% during the quarter.
Revenue from federal customers rose 5.5% to $160.1 million from $151.8 million fueled by per diem increases during 2008.
Revenue for managing state customers increased 9.5% to $211.8 million from $193.5 million in the year ago time frame.
State revenue growth was primarily due to increased inmate populations in the states of California, Colorado and Idaho, which offset declining inmate populations in Minnesota, Washington, New Mexico, and Kentucky, as well as per diem increases during 2008.
“We are pleased that we were able to capitalize on our bed developments in 2008 through the award of three new contracts during the first quarter of 2009 for nearly 4,000 additional inmates,” said John Ferguson, Chief Executive Officer.
“The remaining 6,700 beds in inventory positions us for additional growth in the future,” he added.
Share Repurchase Program
In Nov 2008, the company announced a $150 million share repurchase program. Through May 1, 2009, CCA repurchased 10.7 million shares for a cost of $125 million. The company accelerated share repurchases in the first quarter, spending $108.4 million on 9.6 million shares.
Guidance Clouded by State Budget Concerns
CCA provided second quarter earnings per share guidance in the range of 26 cents to 28 cents. Full year 2009 EPS is expected to be between $1.17 to $1.25 per share.
The magnitude of the economic crisis on state budgets is a not yet apparent as fiscal year 2010 budgets are due by July 1. The company cautioned that the earnings guidance included its best estimate of potential outcomes in states that are customers.
However, the company believes it will see long-term benefits from the supply and demand imbalance in the number of beds that continues in the industry.
Consensus Estimates Rise
Covering analysts appear to be cautious despite the company’s guidance. Second quarter estimates are at the high end of the forecast range, at 28 cents per share, but they’ve been there for the last 60 days.
Full-year estimates are up 5 cents to $1.21 per share in the last 2 months but 2 have lowered and 1 has raised within the last 30 days.
Value Fundamentals
Corrections Corporation of America is a Zacks #1 Rank (strong buy) stock. It has a forward P/E of 13.33. Its price-to-book ratio is 1.48. The company has a 5-year average return on equity (ROE) of 10.15%.
