This morning we came across a rather interesting piece of research.It was from Barclays’ analyst Manav Patnaik, and it was on the private prisons business.
Specifically, it was a “virtual tour” of the Metro Davidson County Detention Facility, which is managed by Corrections Corp of America (CXW) one of two companies that that has a “duopoly” on the private prisons business.
As he notes, tours of facilities are often useful for investors, but a prison tour is unusual, since investors aren’t typically inclined to do wander into a prison.
So he did it for them and described the experience.
When he entered, it was greeted by the prison’s VP of operations, Steve Conry, who was a 23 year veteran oof Rigers Island. Panaik then points out that there are 173 sets of “eyes” (cameras) on the prison at all time.
While in the prison he saw that prisoners got drug and alcohol abuse prevention training, a dog training program, a new LEED certified wing for women, GED programs, and a faith-based program. Maybe it’s not so horrible!
Anyway, eager to learn more we checked out a recent earnings presentation from Corrections Corp of America, where in addition to spelling out the company’s latest financials, management also walks through the macro bull case for prisons.
And this is where it gets creepy, because as an investor you’re pulling for scenarios where more people are put in jail.
Among the bullish datapoints.
- The US prison program only seems to go up over time.
- Private prisons only account for 10% of the entire prison business, meaning the opportunity is big.
- There’s a growing issue with immigration detention, creating opportunities for private prisons.
- The existing prison infrastructure is decaying.
- While some states may slow incarceration during recessions (via increased use of parole to save money) they always make up for it when the recession is over.
It’s all pretty weird, but we’re not judging one way or another here… just pointing out that it’s a strange business to be in: Caging humans for profit.
We’ve selected some telling slides from the company.
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