Tyco International Ltd. (TYC), ADT Corp (ADT): Secure Returns With These Security Companies

Acquisition for additional revenue

The U.S. federal government amended immigration laws to enhance national security. The law requires the detention of inmates who are present in the U.S. illegally or without complete documentation. With this amendment, prisoner populations will increase by 14,000 annually. The government has turned to private prison companies to fulfill the inmate housing need. The Geo Group, Inc. (NYSE:GEO) is one of the largest private prison contractors in the U.S. and will acquire 40% of this inmate increase. This will lead to incremental earnings before interest, taxes, depreciation and amortization of $44 million for the company through 2018 and an increase in operating income of $0.35 per share by the end of this year.

With the growing number of inmates, the company acquired the Joe Corley Detention Center in Montgomery County, Texas. This will be beneficial as the company used to manage this center and is familiar with its operations. The deal closed on June 7, 2013 for approximately $65 million, funded from its free cash flows and available borrowing. This center has a facility of 1,287 beds to house inmates. It expected to generate annual revenue of $27 million.

Bottom line

All three of the above companies will benefit from the growing demand for security and protection products. Tyco International Ltd. (NYSE:TYC)’s new acquisition will enhance its product portfolio and will benefit from its cost reduction initiatives. ADT Corp (NYSE:ADT) will continue to add features to its home automation security and will adopt various strategies to retain customers. The Geo Group, Inc. (NYSE:GEO)’s detention center expansion will also increase company revenue.

Looking at the potential of each company, I recommend a buy for all three.

The article Secure Returns With These Security Companies originally appeared on Fool.com and is written by Shweta Dubey.

Shweta Dubey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Shweta is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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