Private prison stocks bounce back after deep fall

Offenders search for books and study at a library.
Adrees Latif | Reuters
Offenders search for books and study at a library.

Private prison stocks recovered slightly Friday morning after plummeting the prior day on news that the Department of Justice plans to ultimately stop using private contractors to run its prisons.

Corrections Corporation of America shares gained more than 8 percent on Friday, while Geo Group shares were up 21 percent, after being briefly halted. In that time, Geo Group announced it renewed a contract with the Bureau of Prisons.

Both Corrections Corporation and Geo Group, the only two publicly traded prison managers who contract with the Department of Justice's Bureau of Prisons, both lost almost 40 percent of their value Thursday. But analysts quickly said the market reaction was overblown.

CXW 5-day performance

GEO 5-day performance

Analyst Ryan Meliker of Canaccord said Bureau of Prisons contracts account for 11 percent of Geo Group's business and 9 percent of the company's business. Meliker has a "hold" rating on Corrections Corporation and a "buy" rating on Geo Group.

On Friday, Moody's revised its outlook on both companies to negative from stable, citing the "substantial uncertainty" the Department of Justice decision will ultimately have on cash flows.