CoreCivic Inc. (NYSE: CXW): A Bull Case Thesis

We came across a bullish CoreCivic Inc. (CXW) thesis on ValueInvestorsClub by agape1095. We follow VIC because their analysts put a lot of effort to do their research about stocks. We find the ideas presented on the site well thought out and definitely worth checking. Click here for the full article about CXW. Below we summarized the CXW bullish thesis:

Formerly known as the Corrections Corporation of America, CoreCivic (CXW) owns and manages private prisons and detention centers. It also provides residential re-entry centers (RRC). The RRCs are transitional housing facilities that provide structured, safe and supervised environments for residents and help them develop tools they need to rebuild their ties to the community. It also owns a non-core portfolio of office buildings leased to government agencies, which is earmarked for sale to reduce debt. The prison segment accounts for 85% of the net operating income. CXW, at present, is a REIT structure.

Strengths of CXW Stock

CXW operates in a business that has high barriers to entry. The local community sensitivities coupled with cumbersome government approvals tend to build a moat for CXW as it has decades-long track record of being able build a cost-effective facility in time-bound fashion or ramp up one of the idles ones. The need to replace over-stretched old prison facilities with newer ones is a plus for CXW. Resumption of illegal border crossing stemming from economic disparity between the US and its Latin neighbors could potentially add prison inmate count. Another important fundamental supporting the positive prison inmate count is the rising popularity of the opinion that politicians are too soft in crime control like mob violence or murders, and need to pass tougher punishments. A Joe Biden victory is perceived to bring criminal justice reform with hardened stance on crime.

The company has enough liquidity to repay its debt and will convert from a REIT to C Corporation in 2021 allowing for earnings retention as opposed to distribution of earnings as a dividend in the former’s case. As the government usually has long-term lease contracts with CoreCivic Inc with zero upfront payment and therefore richer coffers for state budgets. This helps CXW maintain earnings stability and visibility. Stock is hovering around low multiple of 6.9x LTM EBITDA. Depression is due to temporary factors including COVID-induced low court hearings (and convictions) count, US-Mexico border shut down, and investors bailing out due to dividend elimination on the back of conversion to C Corp.

The analyst’s base target price for CXW is $20.