Investors trumped from lack of windfall gains from new contracts for private prisons

While investors had hoped that Trump’s tough talk on illegal immigrants will result in CoreCivic Inc and Geo Group Inc winning government contracts for building prisons, but with fewer illegal immigrants taking the risk to cross over from Mexico to the U.S., the anticipated windfall values in the prices of these stocks have not materialized.

Investors who had previously bet on U.S. President Donald Trump’s tough line on illegal immigration and crime are licking their wounds stemming from high hopes and disappointment; a few investors are however still clinging on the stocks in the hope of windfall values.

These hopes lie in the two listed operators CoreCivic Inc and Geo Group Inc winning contracts from states, that have overcrowded jail, to build more prisons.

According to investors, these two companies own prime real estate, which makes them attractive.

The Trump Administration’s proposals to bolster the U.S. Immigration and Customs Enforcement (ICE) agency could potentially help them in the future, but as yet, it remains to be seen how much of the new money will they be able to attract.

“People are focusing on ICE and ignoring the state level opportunities,” said Jordan Hymowitz managing partner Philadelphia Financial Management.

After Trump winning the race for the White House, the shares of Geo and CoreCivic went ballistic partly on expectations that the new administration will bolster ICE which will result in more arrests and in turn boost the number of detention centers.

Much to the surprise of investors, the exact opposite has happened: after Trump’s inauguration there have been fewer cases of illegal immigrants and as a result the share prices of CoreCivic and Geo, which peaked in February and in April, went in reverse gear.

Despite the increase in the number of detention centers, their share prices however haven’t mirrored their move. CoreCivic now trades 37% below its post election high, while Geo is nearly 32% below its 2017 peak.

According to Investors, the lack in clarity on how these businesses will gain from ICE is reigning in their stock prices.

“People can’t figure out if immigration reform is good or bad for private contractors,” said Eric Marshall, portfolio manager and head of research at Hodges Capital Management.

Both CoreCivic and Geo declined comment on their performance and outlook beyond their comments in earnings calls and statements.

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