Corrections Corp of America (CXW): Socially Unconscious, but Getting It REIT

As for 2013, the company is headed for substantial year-over-year earnings growth. For full year 2013, EPS is expected to be in the range of $2.05 to $2.15, or 24%-27% year-over-year growth. The expected annual dividend is in the range of $2.04 to $2.16, or 2%-8% more than its current payout. And, with all of the company’s government subsidies, it is looking at a GAAP income tax rate of just 8.5% to 9%.

I can’t in good conscience support the company’s business practices, nor do I think so much government funding should go toward imprisoning people, but looking at CCA purely as a stock, it is one attractive pick. Just sayin’.

Valuation
Both CCA and GEO Group are relatively expensive stocks, hovering around 20 times one-year forward earnings. But they will also be experiencing double-digit earnings growth and paying those lovely 90%-of-taxable-income earnings now that they are reorganizing as REITs. I find both stocks to have room to run in the coming year based on strong guidance and a more favorable corporate structure. If that’s incorrect, you have built-in protection with the dividend that is likely to rise in the coming years.

Prison stocks aren’t the prettiest companies to own. You don’t feel as if you’re contributing to a better America by investing in them. But similar to cigarettes, guns, oil, and natural gas, these are unfortunate truths about our nation. Until we correct (pun!) to a more reasonable developed country, I may quietly and guiltily take my piece of the pie.

The article Socially Unconscious, but Getting It REIT originally appeared on Fool.com and is written by Michael B. Lewis.

Fool contributor Michael B. Lewis has no position in any stocks mentioned. The Motley Fool recommends Corrections Corporation of America.

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