Corrections Corporation of America (CXW)

One in every 100 Americans is now living behind bars, according to a recent study. USA 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.

Collectively, $44 billion was spent on corrections last year, a 127% increase over 1987 totals. In this same time period, spending on higher education increased at just 21% -- this is dire news to hear,but policies aiming to cut the massive amounts of dollars spent on corrections will take longer than expected. This means, jail stocks will still be good investments over the next couple of years. Crime is still too high. The “Catch and Release” program (in which people are now held until their hearing date, rather than set free) has become another source of unmet demand.

Just 7% of the US prison population is housed in a private detention facility; Corrections Corp has more than half of the market and has the wind at its back. The federal government perpetually has a hard time selling taxpayers on the notion of building new prisons. At the same time, however, state prisons are nastily congested (in some states, jails are so crowded that inmates are forced to sleep in the gymnasium): federal prisons are running at 134% capacity and 23 state prisons are running at 100% capacity. What this means for Corrections Corp is pricing power. It is estimated that state and federal customers will need another 14,000 beds over the next five years. That’s the demand side, and management is meeting it with flawless execution: At a 95% occupancy level, CXW is generating a pre-tax return on invested real estate capital of 15% and giving the Street revenue visibility investors attach higher multiples for. There is no reason for CXW to not capitalize on this secular theme. The demographics at play suggest more crime is on its way, and no one’s better positioned – from a managerial and pipeline perspective – than CXW.

One in every 100 Americans is now living behind bars, according to a recent study. USA 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.

Collectively, $44 billion was spent on corrections last year, a 127% increase over 1987 totals. In this same time period, spending on higher education increased at just 21% -- this is dire news to hear,but policies aiming to cut the massive amounts of dollars spent on corrections will take longer than expected. This means, jail stocks will still be good investments over the next couple of years. Crime is still too high. The “Catch and Release” program (in which people are now held until their hearing date, rather than set free) has become another source of unmet demand.

Corrections Corporation of America has the private prison market on lock down. The company operates more than 65 correctional, detention, and juvenile facilities with a capacity of some 78,000 beds in about 20 states and Washington, DC. CCA contracts with federal, state, and local authorities to manage the facilities, about 40 of which are company-owned. CXW also owns three facilities that are managed by other companies. Federal correctional and detention authorities account for 40% of CXW's sales. The company provides rehabilitation and education programs for inmates of its facilities. CXW also provides transportation of prisoners through its TransCor America unit. TransCor operates throughout the US and serves more than 800 federal, state, and local agencies. CCW employs 16,000 people.