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Jan. 27, 2021, 8:56 a.m. EST

Prison stocks tumble as Biden targets them with executive order

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By Victor Reklaitis

Prison stocks tumbled as President Joe Biden on Tuesday signed an executive order that aims to curtail the federal government’s use of private prisons.

Biden said he also signed a memorandum directing the Department of Housing and Urban Development to address “our nation’s and the federal government’s history of discriminatory housing practices.”

In addition, the new president said another measure directs agencies to “combat the resurgence of xenophobia, particularly against Asian Americans and Pacific Islanders,” that has occurred during the COVID-19 pandemic. One other executive action that came Tuesday aims to encourage agencies to engage in consultations with tribal governments.

“We’re going to continue to make progress to eliminate systemic racism, and every branch of the White House and the federal government is going to be part of that effort,” Biden said.

Related: All of President Biden’s key executive orders — in one chart

And see: Biden administration looks set to target ‘forever chemicals,’ as 3M warns about ‘onerous regulation’

Analysts have been predicting trouble for publicly traded companies that run prisons given Biden’s pledge during the 2020 campaign to “end the federal government’s use of private prisons.”

“With President Biden’s team falling into place at agencies across the federal government and his most senior nominees undergoing Senate confirmation, we have begun the countdown to a ‘whole of government’ shift in policy that will have a materially adverse impact on private prison companies, particularly CoreCivic (CXW) and GEO Group (GEO),” said Beacon Policy Advisors analysts in a note last week.

CoreCivic’s stock /zigman2/quotes/200590180/composite CXW +0.63% closed lower by 6% on Tuesday and is off 61% over the past 12 months, while GEO shares /zigman2/quotes/209855552/composite GEO +0.97% lost 8% and have shed 54% over that period. The broad S&P 500 index /zigman2/quotes/210599714/realtime SPX -1.76% was down 0.2% for the session and has gained 17% over the past 12 months.

A trade association representing prison companies criticized the executive order.

“This EO is rooted in several faulty assumptions about the work of private sector contractors at the federal level,” the Day 1 Alliance said in a statement .

Recent months have delivered a big shift in fortunes of the companies from four years ago, when a Canaccord Genuity analyst said former President Donald Trump’s inauguration was highlighting the most compelling opportunity in years to buy prison stocks .

Beacon’s analysts said last week that with the House and Senate both now under Democratic control, there is less opportunity for Congress to interfere in the change on private prisons.

“Skeptics of the ability of the Biden administration to fulfill this campaign promise typically point to the protests that will be likely from the USMS and ICE career staff, who have come to rely on these companies,” Beacon’s team added, referring to the U.S. Marshals Service and Immigration and Customs Enforcement.

“To get around these complaints with ICE, we expect that the Biden administration will likely release a substantial number of detainees and dramatically scale back the number of undocumented immigrants that are detained and deported in the future. … For the USMS, the decision is trickier, but we expect that the first step will be to redouble efforts to house federal detainees in state and local prisons.”

Susan Rice, a top Biden adviser on domestic policy, said Tuesday’s executive order is aimed at the Department of Justice (which oversees the USMS) but not ICE. She also talked up all of the day’s executive actions at a news conference.

“These are a continuation of our initial steps to advance racial justice and equity through early executive action,” she said.

Mizuho analysts have sounded downbeat on prison stocks since Biden’s election as well, saying in a November note that they expect “REITs involved in prisons/detention centers to be negatively impacted.”

Now read: How Washington’s criminal-justice reform touches just a small slice of the U.S. prison population — in one chart

$ 7.97
+0.05 +0.63%
Volume: 937,153
May 12, 2021 1:51p
P/E Ratio
Dividend Yield
Market Cap
$952.59 million
Rev. per Employee
$ 6.22
+0.06 +0.97%
Volume: 2.46M
May 12, 2021 1:51p
P/E Ratio
Dividend Yield
Market Cap
$749.24 million
Rev. per Employee
-73.11 -1.76%
Volume: 1.28B
May 12, 2021 1:51p

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