Shares of two major prison stocks dropped sharply Thursday after a report the U.S. Justice Department will end the use of private prisons. But at least two analysts said the decline was overdone.
"The massive falloffs in the stocks imply that the risk will spread to other federal, state and local jurisdictions. While this is possible, we believe it is unlikely. As such, we think today's stock action is more based on fear than actual cash flow risk," said Ryan Meliker, analyst at Canaccord Genuity, which maintained Thursday a "hold" rating on Corrections Corp. and a "buy" on GEO.
Corrections Corp. of America and GEO both briefly plunged more than 40 percent in midday trade. Trading in both stocks was intermittently halted amid their decline Thursday. The stocks ended the day down more than 35 percent and 39 percent, respectively.