CoreCivic poised for growth under Trump after rocky 2016

The headaches of 2016 for CoreCivic, the Nashville-based prison operator formerly known as Corrections Corporation of America, began in June with a scathing Mother Jones expose.

Then came an unflattering report about private prison operators from the Department of Justice and a memo calling for the end of their federal contracts. Amid multiple lawsuits from shareholders and a restructuring — calling for 55 layoffs — shares tanked by almost 50 percent only to nearly recover from declines after the presidential election. 

“It’s been a tumultuous couple of months to say the least,” CoreCivic CEO Damon Hininger said.

While the fall of 2016 has been a roller-coaster ride for the 33-year-old company, there’s good reason to believe 2017 will be a better year for CoreCivic and its shareholders.

Among the factors likely to boost CoreCivic’s bottom line is the election of President-elect Donald Trump. Under President Barack Obama, the Department of Justice said it would reduce the use of private operators of federal prisons and released a report pointing to a higher rate of safety and security incidents at private facilities. The Department of Homeland Security also said it would evaluate the use of private operators of its immigrant detention centers, eight of which are run by CoreCivic.

Hillary Clinton had called for not only the end of private prisons at the federal level, but the state level as well, arguing profit motivations should be left out of prison systems. When she made those comments during the first presidential debate, CoreCivic’s stock tumbled 7 percent the next day.  

Meanwhile, President-elect Trump launched his presidential bid on the platform of cracking down on illegal immigration and made detaining and increasing deportation a central part of his campaign. If Trump follows through on his campaign promises, instead of seeing its overall contracts decline with the federal government, CoreCivic could see additional demand for its detention center services.

“If the new administration and leadership with Homeland Security and (Immigration and Customs Enforcement) see a need that is not being met today, we’ll be right there to help them with a solution if they think we can provide a solution that is viable and attractive to them,” Hininger said.

Hininger referenced CoreCivic's 2,400-bed family detention center in Dilley, Texas, as an example of CoreCivic’s innovation with immigration centers. The facility, one of CoreCivic's eight detention centers contracting with ICE, was built in 2014 to address what company officials described as a humanitarian crisis, when an influx of Central American immigrants crossed the border and Obama's administration sought to deter others, according to The Washington Post. 

CoreCivic's contract with the Homeland Security Department concerning the Dilley site was renewed in October. In December, a Homeland Security subcommittee determined that the use of privately run facilities would continue based on cost, the need to respond to detention surges in detention? and more "problematic" conditions at county jails. But the advisory council rejected that portion of the report, U.S. News & World Report reported. The director will make any final decisions. 

Opportunities in criminal justice reform

Throughout her campaign, Clinton also called for criminal justice reform and the reduction of mandatory sentences for nonviolent offenders, an issue that had been embraced by Obama and by members of both parties.

Trump, meanwhile, emphasized “law and order” during his candidacy but said little about criminal justice reform. In a town hall meeting, he said relying on private prisons "seems to work a lot better."

While the criminal justice reform issue maintains bipartisan support, it does not seem to be among Trump’s top priorities, CoreCivic Chief Development Officer Tony Grande said. 

“My personal opinion is there is going to be an effort in a bipartisan fashion to do something in Congress related to criminal justice reform. There are issues that need to be addressed,” Grande said. "When you go through his first 100 days, it doesn’t appear that criminal justice reform is high on the list, but I haven’t seen any indication that it is not going to eventually be taken up."

While reform could lead to further drops in incarceration, it also could lead to new profits for CoreCivic. In the past three years, the company has found growth opportunity in re-entry services and has bought 25 facilities that focus on reintegrating offenders back into their communities near the end of their sentence. If the criminal justice system allocates more resources to fighting recidivism, CoreCivic stands to gain.

"At the end of the day we all want to see prison populations decreasing," Grande said, pointing to the $250 million CoreCivic has invested in re-entry facilities. "That’s where we think the collective thinking about criminal justice is going. Those are going to be the eventual solutions that we are going to be most helpful with."

A new real estate niche

CoreCivic, which employees 13,000 people, also is looking to take advantage of the expertise it has built in real estate. In the past three years it has begun helping federal, state and local governments find locations for new prisons as they seek to replace their aging — sometimes more than 100-year-old — facilities. CoreCivic owns the property, and the governments operate the new, more modern facilities.

About 300,000 beds are in prisons more than 75 years old, which are costly to maintain and operate and pose safety risks, Hininger said. “There clearly was a need for newer infrastructure," he said. 

In five years, the re-entry facilities and the real estate side of CoreCivic could together make up between 20 and 40 percent of the company's revenue. Hininger said he did not foresee employment declines at the core operations — prisons and detention centers — but that growth in other areas would be additive. 

Since the election, CoreCivic shares have ticked up by more than 65 percent to $23.59 as of Dec. 21, reflecting optimism in CoreCivic's direction. Hininger said he is not paying too much attention to the swings. 

He described the stock declines after the Justice Department memo and the gains after the election as overreactions. When the stock hit its lows this fall, he and other CoreCivic executives bought shares, seeing them as undervalued, and Hininger said he did not read too much into the 43 percent gains CoreCivic shares posted Nov. 9. 

“We have a really, really good track record over the last 30-plus years to deal with, regardless of who is in the White House or statehouse, our partners,” Hininger said. “This was going to happen. Regardless of who was elected to the White House, once the new leadership comes in and sees the quality of our operations, sees the value we provide to our partners and ultimately to the taxpayers they are entrusting us to serve, that will all stabilize.”

Reach Jamie McGee at 615-259-8071 and on Twitter @JamieMcGee_.

About CoreCivic

CoreCivic, founded in 1983, employs 13,000 people, about 600 of whom are in Nashville, and partners with federal, state and local governments. It operates eight Immigration and Customs Enforcement facilities and three Bureau of Prisons facilities.