Private prison roundup: Investors betting on immigration detention boom continuing

I wanted to point out a few items related to private prisons that came out while Grits was on holiday. First, the media seems to have finally caught on to a trend this blog prophesied six years ago in a post titled "The Coming Immigration Detention Boom." See:

• Reuters: Immigrants are cash cows for private prisons
• Pittsburgh Post Gazette: Immigration detainees drive private prison growth
• Huffington Post: Private prison companies making big money off detaining immigrants

As is usually the case when it comes to law enforcement and prison pork, this trend is a bipartisan one, supported as much or more by the Obama Administration as his Republican predecessor.

Via the blog Texas Prison Bidness, we find coverage of efforts by advocates to combat the unholy alliance of xenophobia and corporate welfare in an item titled, "Groups working to Fight Private Prison Expansion and Immigrant Detention Host Webinar."

Here in Texas, the GEO Group's bid to operate a forensic mental hospital (in fact, they were the only bidder) has drawn criticsm; see: 

• Texas Prison Bidness: GEO group faces opposition in bid to run state hospital
• Texas Tribune: Advocacy groups don't want GEO to run state hospital

See related Grits coverage of the project here, here and here.

This business reporter from the Palm Beach Post commented on the growth in private prison revenues at the two largest players in the market: The GEO Group and Corrections Corporation of America, noting the recent dropoff in GEO stock despite rising revenues:

GEO Group’s revenue — which has risen every year for nearly 20 years — and steady profits make it a financial success story. It’s the second-largest operator of private prisons, trailing only Corrections Corp. of America (NYSE: CXW) of Nashville.

But investors clearly prefer CCA. While GEO Group’s revenue is similar to CCA’s, CCA is twice as profitable, and CCA’s market capitalization is twice GEO Group’s. A $10,000 investment five years ago in GEO Group would have dwindled to $8,667, while the same amount invested in CCA would have grown to $13,237.

The writer attributes the difference to scandals and lawsuits involving the GEO Group, which is certainly part of it, but Grits believes the underlying reason for the stock differences arises from more pedestrian sources. Both companies are overloaded with too much debt, but GEO's debt to equity ratio is higher and CCA enjoys greater value from real estate holdings from facilities it owns, whereas the GEO Group typically manages state-owned facilities instead of owning the units themselves. The current earnings boom is tenuous and could evaporate quickly if Congress ever gets around to passing comprehensive immigration reform. But real estate holdings could be spun off in that event, making CCA more valuable from an investor's perspective. Grits would like to think investors would devalue publicly traded private prison stocks because of human rights abuses, but in my heart of hearts, I doubt it.

MORE: A commenter pointed out this interesting exposition from Crooks and Liars of CCA's real estate holdings as they relate to Bain Capital and presidential candidate Mitt Romney. Whatever your partisan leanings, the detail on CCA's real estate investments (and methods for concealing property-related wealth from taxation) provide greater detail and insight into why the company has retained greater value than GEO.