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Corrections Corporation of America (CXW) |
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WIKI ANALYSIS
Founded in 1983, Corrections Corp of America is the largest private owner and operator of correctional and detention facilities in the United States. The company owns and operates medium and maximum level security facilities for the US Federal government, 20 state agencies, and numerous local agencies. CXW currently maintains an inmate population of approximately 73,000 at 65 facilities.
The company's portfolio consists of nearly 49,000 beds at 41 owned facilities, and more than 26,000 beds at 24 managed facilities. As of the second quarter of 2007, approximately 88% of the company's facility EBITDA was generated by the 41 owned facilities. In total, CXW manages approximately 47% of all privately managed beds in the United States.
Business Overview
During the first nine months of 2007, CXW generated approximately 41% of its revenue from federal customers (U.S. Marshals Service, U.S. Immigration and Customs Enforcement, and the Federal Bureau of Prisons). The remainder of the company's revenue was generated by various state and local customers, with no single non-federal customer accounting for more than 7% of total revenues. All of the company's consolidated revenue is generated from customers in the United States.
The company is able to generate unleveraged, pre-tax returns on new real estate investments between 13% and 15%, at stabilized occupancy levels of 95%.
CXW is able to generate predictable revenue streams, as the company is paid an inmate per diem rate, with guaranteed minimum occupancy levels. Contracts typically carry one to five year terms, with average terms between three and five years and staggered rollovers.
Trends and Forces
CXW is the leading private prison and jail owner and operator in the United States. The company controls approximately 47% of all private prison and jail beds in the country. Additionally, CXW currently owns approximately 65% of its capacity, with the remaining percentage represented managed-only capacity. This percentage of owned capacity is scheduled to increase in coming years, as the company has numerous owned developments in the development stage.
The company continues to grow at a substantial pace, added 2,971 beds year-to-date. Further, CXW maintains a sizeable pipeline, with plans to add an additional 10,411 beds over the course of the next seven quarters, all of which will be owned by the company.
Outsourcing to Private Firms
The detention & corrections industry in the US comprises a $61B opportunity. Just 7 out of every 100 prison beds are outsourced to private companies. The trend to outsource is nowhere far from saturation: in 1990, privatized beds in our nation totaled just over 10,000; today, that number is closer to 165,000. The trend could continue in the near future, but possibly accelerate.
Increase in the US Prison Population
One in every 100 Americans is now living behind bars, according to a recent study by the Pew Center. More distressing is the fact that even though the population has increased threefold over the last 20 years, the costs associated with corrections/imprisonment have more than quadrupled over the same time period. Our nation currently spends 60c on correction for every dollar it spends on higher education – this reflects an increase of 28c over the last 20 years. Clearly, policy choices made over the last 2 decades have sent more offenders to prison and kept them there longer. Between 1996 and 2006, the US prison population increased more than 3% on average.
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