Corecivic, Inc.

CXW Details

Corecivic, Inc. (NYSE: CXW) operates as a diversified government solutions company, which provides partnership correctional, detention and residential reentry facilities and operates prisons in the United States. Its operating segments are 1) CoreCivic Safety, which operates 47 (42 company-owned) correctional and detention facilities, with a total design capacity of ~70,000 beds; 2) CoreCivic Community, operating 26 residential reentry centers with a total design capacity of roughly 5,000 beds; and 3) CoreCivic Properties, which holds ten properties, totaling 1.6 million sq. ft, that are leased to third parties and used by government organizations as of June 30, 2021. As of September 30, 2021, the company's market capitalization stood at USD 1.08 billion.

USD 225 Million Notes Offering: On September 22, 2021, CXW priced and upsized an additional offering of USD 225.0 million (upsized from USD 100.0 million) aggregate principal amount of 8.25% senior notes due 2026. Net proceeds from this offering (estimated to be USD 225.5 million), along with the previously issued USD 450.0 million of 8.25% senior notes due 2026 (closed in April 2021), will be used to repurchase USD 174.0 million of outstanding 4.625% senior notes due 2023 and USD 250.0 million of 4.75% senior notes due 2027 and to repay its revolving credit facility.

New lease Agreement: On September 21, 2021, CWX signed a three-year lease agreement with the State of New Mexico, under which the company's facility operations at the 596-bed Northwest New Mexico Correctional Center will transition to the New Mexico Corrections Department when the new leasing deal begins on November 01, 2021. CXW will be responsible for facility maintenance throughout the lease term, which carries an automatic extension option, with the extension period running till October 31, 2041.

Q2FY21 Results: The company reported a 1.71% decline in revenue to USD 464.57 million in Q2FY21 (ended June 30, 2021) from USD 472.64 million in Q2FY20. The Safety segment, which accounted for 90.39% of the total revenue in Q2FY21, reported a decline of 1.0% YoY, whereas the Community segment declined by 4.13% YoY. Net income for Q2FY21 decreased to USD 15.62 million from USD 22.19 million reported in Q2FY20. As of June 30, 2021, the company had cash & cash equivalents of USD 162.89 million and total debt of USD 1.51 billion.

Key Risks: CXW generates most of its revenue from a limited number of government agencies. For example, in FY20, its top three federal governmental agencies, ICE, the USMS, and the BOP, represented 52% of the total FY20 revenue. Hence, the loss of or a significant reduction in any of these government contracts could adversely impact the company's financials.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CXW Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: CXW's stock price decreased 15.53% in the past three months and is currently close to the mid-point of the 52-week range of USD 5.76 to USD 12.35. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 45.99. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 11.02. Considering the correction in the stock price, new lease agreements, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 8.90, down 0.56% as of September 30, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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