Biden’s policies will hurt prison stocks, analysts say

President Joe Biden’s pledge during the 2020 campaign to “end the federal government’s use of private prisons” has analysts predicting trouble for publicly traded companies that run those facilities.

“With President Biden’s team falling into place at agencies across the federal government and his most senior nominees undergoing Senate confirmation, we have begun the countdown to a ‘whole of government’ shift in policy that will have a materially adverse impact on private prison companies, particularly CoreCivic (CXW) and GEO Group (GEO),” said Beacon Policy Advisors analysts in a note last week.

CoreCivic’s stock
CXW,
-1.77%

has lost 59% over the past 12 months, while GEO shares
GEO,
-3.83%

have shed 50%. The broad S&P 500 index
SPX,
+0.36%

has gained 17% over the same period.

Recent months have delivered a big change in fortunes for the companies from the situation four years ago, when a Canaccord Genuity analyst said former President Donald Trump’s inauguration was highlighting the most compelling opportunity in years to buy prison stocks.

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Beacon’s analysts also said that with the House and Senate both now under Democratic control, there is less opportunity for Congress to interfere with a change on private prisons.

“Skeptics of the ability of the Biden administration to fulfill this campaign promise typically point to the protests that will be likely from the USMS and ICE career staff, who have come to rely on these companies,” Beacon’s team added, referring to the U.S. Marshals Service and Immigration and Customs Enforcement.

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“To get around these complaints with ICE, we expect that the Biden administration will likely release a substantial number of detainees and dramatically scale back the number of undocumented immigrants that are detained and deported in the future. … For the USMS, the decision is trickier, but we expect that the first step will be to redouble efforts to house federal detainees in state and local prisons.”

Mizuho analysts have sounded downbeat on prison stocks as well, saying in a November note that they expect “REITs involved in prisons/detention centers to be negatively impacted.”

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