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Private prison stocks are breaking out. Shares in Geo Group and CoreCivic, two of the largest for-profit operators of prisons and immigrant detention centres in the US, have shot up 74 per cent and 55 per cent since Donald Trump’s election victory this month. History suggests Make America Great Again trades do not always do so great.
In theory, the two companies stand to benefit greatly if Trump delivers on his promise to crack down on border security and illegal immigration. For his second term, the president-elect pledges to oversee the largest deportation operation in American history.
That could mean more business to CoreCivic and Geo. Adding to the bullish sentiment: Republican control of both the Senate and the House of Representatives means Trump should have an easier time getting Congress to authorise funding for Immigration and Customs Enforcement (ICE) to implement his plans.
Shortly after Trump took office in 2017, the then attorney-general Jeff Sessions signed an order reversing an Obama-era directive to phase out private prison use. Immigration detention soared, with ICE detaining on average over 50,000 people each day, according to findings from the civil rights group ACLU. Private prison companies were the biggest beneficiaries. They housed 91 per cent of all people held in detention centres that opened under the Trump administration.
Despite that, revenue barely budged at the two companies during Trump’s first term. At Geo, the $2.3bn of revenue it pulled in 2020 was just 8 per cent more than what it made in 2016. Net income actually fell during the period. It is a similar story at CoreCivic. Revenue grew just 3 per cent while net income fell from $220mn in 2016 to just $54mn in 2020.
Shares in Geo hit a record high in April 2017, giving the company a market valuation of more than $4bn. Since then they have lost as much as 80 per cent of their value. Even after its post-election rally, the stock remains about 25 per cent off its peak. CoreCivic is worth just two-thirds of what it was back in April 2017.
During the first Trump administration, a government shutdown delayed payment for private prison operators. Then there was the pandemic. Outrage over immigrant detention, family separations and reports of squalid conditions at some border facilities also prompted a backlash about the ethics of investing in private prisons. Some banks decided to no longer lend to the industry. Public pension funds and universities announced their intention to divest.
Trump trades that look obvious now may not prove to be winners. Even with policy follow through (not a given), they can run up against other political realities.
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