Private prison stocks posted their worst quarter in more than a decade, after getting hit by a slew of negative news over the last two months.
Corrections Corporation of America dropped nearly 60.4 percent for the quarter, its worst since 2000, when the stock lost 71 percent in fourth quarter of that year. GEO Group fell more than 30 percent for the quarter, its worst since the third quarter of 1999.
The stocks began to slide in August after the Department of Justice announced it would instruct the Bureau of Prisons to begin phasing out the use of private contractors for federal prisons. Despite this, on Friday GEO Group announced the bureau extended its contract for a GEO correctional facility for another two years.
"Over the longer term, we believe investors will better understand the limited risk to the non-(Bureau of Prison) contracts," Canaccord analyst Ryan Meliker said in a Friday report. He maintains a buy rating on GEO Group and a hold rating on Corrections Corporation, but in August lowered price targets for both stocks.
CXW 3 month performance
GEO Group shares 3-month performance
Shares of both GEO Group and CXW closed slightly higher Friday, but still ended sharply lower for the week as political rhetoric against use of private prisons has only increased.
Risks to both stocks include "political pressure related to large social programs" and "headline risk related to specific events or inadequate government or state reviews," SunTrust analysts Tobey Sommer and Kwan Kim said in a Monday night report. However, they maintain a buy rating on GEO Group and a neutral rating on Corrections Corporation.
They lowered their price targets on both stocks on September 1, citing the recent "political shift."
In the first presidential debate on Monday, Hillary Clinton maintained her position of ending federal use of contractors. "I'm glad that we're ending private prisons in the federal system. I want to see them ended in the state system," she said. "You shouldn't have a profit motivation to fill prison cells with young Americans."
Corrections Corporation spokesman Jonathan Burns said in an email to CNBC the company respectfully disagrees with Clinton's comments, saying that "ending contracting will lead to more overcrowding, higher costs, and less re-entry programming. And when it comes to detention, it would force the creation of a huge new bureaucracy that just won't be as flexible and cost-effective as we can be."
GEO Group spokesman Pablo Paez told CNBC in a statement that "we are and have always been a partner with the government as well as the communities we serve, working every day to be a part of the solution to society's correctional needs."
CXW shares fell nearly 12.8 percent for the week and GEO Group ended the week 5.3 percent lower.