The GEO Group

Updated: Dec 3, 2021

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Going forward we are going to try and post one or two brief investment ideas every month for our readers. Our hope is to post short bullet point ideas that are easy to understand and help drive our readers to do further research into a company to invest.

The GEO Group is a equity real estate investment trust specializing in the design, financing, development, and operation of secure facilities, processing centers, and community reentry centers in the United States, Australia, South Africa, and the United Kingdom. GEO is a leading provider of enhanced in-custody rehabilitation, post-release support, electronic monitoring, and community-based programs. GEO's worldwide operations include the ownership and/or management of 129 facilities totaling approximately 95,000 beds, including projects under development, with a growing workforce of approximately 23,000 professionals.

  • The GEO Group, which had a solid 2019, should also perform well in 2020. The company gave good guidance for 2020 despite a ramping down of a facility in California which will cost them $47 million. The guidance given was promising even with the assumption this new facility would not contribute to earnings.

  • The company remains shareholder friendly. Although GEO stated that its distribution will remain unchanged for the time being, its yield far exceeds the REIT industry median. Additionally, the payout ratio is below the company’s historical average. There is also $105 million available under its stockbuyback program, which I don't see often in the REIT sector.

  • The shares have under-performed. The stock price of The GEO Group continues to trade more on matters related to politics and legislation rather than company fundamentals. As I mentioned previously, the state of California enacted legislation aimed at phasing out all private, for-profit prisons, including immigration detention facilities. Moreover, U.S. immigration laws remain a hot-topic, and there is a lot of controversy surrounding the company’s processing centers, which are managed on behalf of U.S. Immigration and Customs Enforcement. There is also volatility in the equity and debt markets for these companies. Bank of America has decided to no longer extend financing to correctional and rehabilitation services providers. Looking further down the road, GEO may experience even more pronounced price swings, as the 2020 Presidential election nears. Despite all of the risk, I think the shares are extremely undervalued for a sector that will be very difficult to reform.

At the time of this writing GEO was trading at $10.73 per share.