Controversial private prison name Corrections Corporation of America (CXW) announced an interesting move on Friday, as the company tries its hand at rebranding. The company has been renamed CoreCivic, a potentially kinder and gentler moniker that seeks to move the company away from the perception of for-profit jailer.
As part of the rebranding, the company also announced that it will have three distinct business divisions:
- CoreCivic Safety, "a national leader in high-quality corrections and detention management"
- CoreCivic Properties, "offering a wide range of innovative, cost-saving government real estate solutions"
- CoreCivic Community, "a growing network of residential re-entry centers to help tackle America's recidivism crisis"
The stock has been under tremendous pressure since August, when the Department of Justice's Bureau of Prisons announced that it would phase out the use of private correctional facilities. However, just weeks later the bureau extended a contract with another publicly traded operator, The Geo Group (GEO) , which suggests that the move away from private corrections will be easier said than done. Still, the damage has been done, and CXW is down 60% in the past three months.
Part of this is due to political pressure, as Democratic presidential candidate Hillary Clinton has been very public about her disdain for private, for-profit prisons. The Bureau of Prisons announcement dovetailed nicely with her position, and it appears as though the market is pricing in a Clinton victory, at least as it applies to CXW. With polls tightening and new fallout from the never-ending Clinton e-mail scandal, this could be an interesting trading week for CXW.
While the company's hefty, 16.4% dividend is in jeopardy and is likely to be reduced, it's unclear how large that cut would be. Two weeks ago, CXW put forth some guidance for 2017 suggesting that funds from operations should be in the range of $2.11 to $2.21 a share, which is ahead of the $1.99 consensus. My take remains that CXW has been overly punished (no pun intended), and this remains an opportunity for those willing to stomach some volatility and the unknown.
Whether the company's name change will have any effect on public perceptions about the private, for-profit corrections business or the company itself remains to be seen. It can't hurt, but at the end of the day the proliferation or curtailment of private operators is likely to be dictated by economics.
Interestingly, the one name that I currently own that could really benefit from a name change and rebranding is struggling casual diner Ruby Tuesday (RT) . Ironically, it was the jailer that made the first move, but hope springs eternal that RT will follow CXWs lead.