Federal Directive Sends Private Prison Company Stocks Soaring

A recent directive from President Donald Trump’s Administration has caused the stocks of private prison companies to soar. The Department for Homeland Security (DHS) recently issued two memos that would see the prison populations of those companies rise dramatically. One of the memos paved the way for detaining millions of illegal immigrants, while the other authorized a crackdown on security at the US-Mexico border.

The announcement shows that there is a potential for higher occupancy rates in ICE facilities due to the Trump administration’s policies. Shares of private-prison providers jumped after the announcement. CoreCivic (NYSE:CXW), formerly known as Corrections Corporation of America, surged 3 percent, while Geo Group (NYSE:GEO) gained as much as 3.6 percent.

CoreCivic CEO Damon Hininger said, “When coupled with the above average rate of crossings along the southwest border, these executive orders appear likely to significantly increase the need for safe, humane, and appropriate detention bed capacity that we have available.” Unisys Corporation, which runs IT systems for border security, released a statement from chief executive Peter Altabef that said, “In general, we feel bullish that our focus is increasingly the focus of the new administration.”

Sally Yates, the former deputy attorney general, directed the Bureau of Prisons last August to withdraw or decline contracts for private-prison operators at expiry. CoreCivic’s stock crashed 50 percent right after the directive was issued.

Attorney General Jeff Sessions said in a memo that the directive “impaired the Bureau’s ability to meet the future needs of the federal correctional system.” Jonathan Burns, CoreCivic’s director of public affairs, said in a statement, “The attorney general’s announcement validates our position that the department’s previous direction was not reflective of the high-quality services we have provided to the federal government for decades. We look forward to continuing to serve our federal government partners by helping them address our country’s most pressing correctional challenges.”

The corporations pledged hundreds of thousands of dollars to pro-Trump campaigns during the presidential race. Now they are starting to see returns on their investment, as the measures enacted by President Trump in the months since his inauguration have greatly benefited their bottom line.

Investors anticipated that the new administration would rescind Yates’ directive. Since President Donald Trump won the election, prison stocks have been steadily rising. CoreCivic has surged 149 percent, while Geo Group has risen 105 percent. GEO Group CEO George Zoley said on an investor call, “With the respect to detention services, in support of border security, we would continue to be the largest provider of detention services to the three largest government agencies – that is ICE [Immigration and Customs Enforcement], the Bureau of Prisons, and the US Marshals Service.”