As the largest incarcerator in the world, the United States is a wonderful place to own a prison contracting company. It is also apparently a great place to run a prison contracting company that is actually a REIT. Corrections Corp of America (NYSE:CXW) raised its earnings guidance for the fourth quarter and full year on Friday, along with confirmation that the company is changing its corporate structure to becoming a real estate investment trust. If you can persuade your socially conscious side to go outside and take a walk around the block, this may be a good time to pick up a company with all winds blowing its way.
For those uninitiated in the world of corrections contracting, these companies operate the majority of the United States’ famed prison system. They can do as little as provide food and hospitality (not sure if that’s the word) services to owning the land underneath the concrete. While not likely to ever come within a light-year of the World’s Most Conscious Companies list, these are incredibly lucrative businesses that have about the best possible industry environment. In addition to receiving government subsidies, these companies have access to seriously cheap labor (yes, that’s exactly what you think that means). These stocks are part real estate play, part industrial cash-printer, part hotelier (in the North Korean sense of the word).
Traditionally, companies like Corrections Corporation of America and the The GEO Group, Inc. (NYSE:GEO) have operated as your average incorporated entity. But there’s a new trend afoot as of recently — they’re switching over to REITs. What does this mean for investors? Big, fat dividends complimented by potentially decent capital appreciation. GEO already pays a chunky 6% dividend, and CCA currently pays a little over 2%. You can expect that number to rise though as the company is confirmed to attain REIT status, meaning 90% of its earnings will go out in the form of a check to shareholders.
CCA isn’t just for the income investor, either. It’s a growing company with tailwinds galore.
A seriously wide-moat business
I’m not sure if any prisons in the U.S. literally have moats, but the companies that run them sure do. These companies are deep in the cogs of the U.S. prison complex and have a very comfortable relationship with the government. It shows up on the income statement, too.
CCA bumped its fourth-quarter EPS estimates by a penny to $0.44 from $0.43. The consensus for Street estimates is $0.41. For the full year, the company is also raising its EPS estimates by a penny to $1.57.