Market Insider

Private prison stocks are spiking

An employee waits at the front gate of the Stewart Detention Facility, a Corrections Corporation of America immigration facility in Lumpkin, Ga.
Kate Brumback | AP

Corrections Corporation of America shares extended their gains Tuesday on word that a Texas facility would extend their contract.

Shares spiked Monday after the company reported it is extending and amending a contract with Immigration and Customs Enforcement for the 2,400-bed South Texas Family Center in Dilley, Texas.

Corrections Corp. shares closed at $14.55 on Tuesday, up 20 cents, or about 1.4 percent.

The contract will extend through 2021, thought ICE will pay a lower monthly fixed rate to the company. The agreement is subject to termination upon 60-day notice.

The move "removed some uncertainty" about the company's future relationship with government agencies, according to a note SunTrust analysts Tobey Sommer and Kwan Kim.

In the same note, Sommer and Kim said "the volume of illegal immigrant families detained at the southwest border increased >80% YoY in September, so the basic building block of demand for this service seems to be robust, in our view."

This comes after a slew of bad news for both Corrections Corp. and another prison company, GEO Group.

In August, the Department of Justice announced it would instruct the Federal Bureau of Prisons to begin phasing out the use of private contractors for correctional facilities. More recently, the Department of Homeland Security has asked the Immigration and Customs Enforcement agency to review its use of contractors.

And Democratic presidential candidate Hillary Clinton has called for the end of private prisons.

At the end of September, both stocks posted their worst quarter in roughly 16 years.

The Bureau of Prisons and ICE make up significant portions of each company's client base, though other government contracts Corrections Corp. and GEO Group also have agreements with other government entities such as state agencies and the U.S. Marshals.

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