Corrections Corporation of America (CXW), the largest operator of private prisons in the United States, is buying back stock as revenue continues to climb. Analysts expect 13.77% earnings growth in 2009. CXW is trading at 11.3x forward earnings.

Company Description

Corrections Corporation of America is the largest owner and manager of prisons for federal, state and local governments in the United States. The company owns and operates about 60 facilities Incorporatedluding 42 that are company-owned, with a capacity of more than 80,000 beds in 19 states and the District of Columbia.

CXW $150 Million Stock Repurchase Program

Despite the current economic conditions, Corrections is bullish about the future. On Nov 14, amidst the credit crisis, the company announced a $150 million stock repurchase program. CXW believed that given market conditions, it was an appropriate use of some of its capital resources.

Funds for the repurchase would come primarily from cash on hand, borrowings under the company’s credit facility and cash from operating activities. The company states it would purchase only at prices which would equal or exceed the rates of return it requires when it invests in new beds.

As of Sept 30, 2008, CXW’s had cash on hand of $28.7 million and $237.2 million under the revolving credit facility.

Third Quarter Revenue Jumped 8.9%

On Nov 6, Corrections Corporation of America reported third-quarter 2008 net income that increased 13.8% to $37.9 million from $33.3 million in the same quarter of 2007. Earnings per share rose 15.4% to 30 cents from 26 cents in 2007. Results missed analysts’ estimates by 1 penny.

Total revenue climbed 8.9% to $411.9 million from $378.3 million in the year ago period. The increase was primarily due to higher inmate populations from the state of California combined with per diem increases in several federal and state contracts.

The average daily inmate population increased by the placement of 6,534 new beds placed into service since the end of second quarter of 2007.

2008 Guidance Adjusted

CXW lowered 2008 full-year guidance to the range of $1.18 to $1.20 from previously issued guidance of $1.21 to $1.24 citing several reasons Incorporatedluding recent reductions in inmate populations from the states of Washington and Minnesota due to earlier than anticipated utilization of new, state-owned bed capacity.

Fourth-quarter EPS is expected in the range of 30 to 32 cents per share.

Going forward, the company is uncertain how the current economic conditions will affect its state, federal and local government customers which may have budget shortfalls. Long-term the company sees a favorable environment, as economic conditions will prevent the building of new capacity which allows for the continuing supply and demand imbalance that favors the private prison industry.

Estimates Holding Steady

Fourth quarter estimates have been holding at 30 cents for the last 60 days, which is in line with the company’s forecast.

1 out of 4 covering analysts have lowered 2008 estimates in the last week but 2008 consensus estimates are still holding at $1.18 per share.

2009 consensus estimates fell 1 penny to $1.34 from $1.35 in the last 2 months, even as 1 out of 4 covering analysts raised in the last week.

CXW is scheduled to report fourth-quarter and full-year estimates on Feb 5.

Zacks Equity Analyst Rates CWX a “Buy”

On Nov 7, Zacks Equity Analyst Sean Smith reiterated the “buy” rating on CXW.

“The company holds a significant market share advantage over its peers, with a substantial pipeline of additional capacity scheduled to be added to the portfolio over the next two years,” said Sean.

“The company is the clear leader in an industry with a strong outlook, supported by favorable economic and demographic trends,” he added.

Value Fundamentals

Corrections Corporation of America is a Zacks #1 Rank (strong buy) stock. It is trading at 11.3x forward earnings. CXW has a price-to-book ratio of 1.41. The company has a solid 5-year return on equity (ROE) of 10.13%.

Content Courtesy: Zacks Investment Research

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