The smorgasbord of earnings releases continues, as the S&P 500 tries to decide where exactly it wants to go. In case you are not keeping track as I am to the point of obsession, the S&P has closed up or down more than 1% 32 times this year (volatile days), all of which have occurred since January 26. Since that first volatile day, the Index is down 6.2%. Year to date, it is down about .4 % which means two things: January was a pretty good month, and year to date money market funds are outperforming the S&P 500.
Meanwhile, first quarter earnings continue to roll in, which makes the market's lack of direction all the more interesting. Private corrections operator CoreCivic (CXW) , which has given back a significant amount of its post-election bump, put up some decent first quarter numbers, beating consensus estimates for both revenue ($440.9 million vs $430.8 million) and funds from operations (53 cents vs 52 cents). One thing is clear: despite a politically motivated desire displayed in and prior to the 2016 elections to curtail the use of private prisons by the Federal government (which backfired), many states still see money saving opportunities in private corrections.
To that end, CXW activated two new state contracts during the quarter, in Ohio and Kentucky. In addition, the company completed a private placement of 20 year notes to finance its new 2432 bed Lansing, Kansas facility, which will replace the state's current 2405 bed facility which was constructed in the 1860's.
There's no doubt that private corrections is a tough industry; if you are building prisons as CXW is, it is capital intensive. In addition, there are political pressures, as we saw in late 2016, with many who don't believe that prisons should be operated for-profit, only by government. When there are scandals, and there have been several, they are front page news providing ammunition to the politicos that believe only the government should be involved in the corrections business. In addition, some states, such as California, have been reducing the use of private facilities. However, as long as the private sector can build and/or run correctional facilities more efficiently and cost effectively, the notion will be appealing to states, many of which are facing budget constraints.
While much of the post-election luster has come off CXW, the current 8% yield is attractive. While you would never want all or many of your eggs in the CXW basket given its volatility, and the aforementioned factors, it is an interesting way to play private corrections.