Private prison operator Geo Group (NYSE:GEO) isn’t winning any friends anytime soon. In theory, private prisons offer a wanted- if not outright needed- solution to the overcrowding dilemma in the broader U.S. penal system. However, privatizing an institution traditionally operated by government agencies raises huge concerns, both for the safety of inmates and correctional officers. What makes entities like GEO stock even more controversial is the ugly social and racial undertones.
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Several years ago, NPR reported about the disproportionately people of color housing these for-profit prisons. Further, profiting from people’s mistakes can be incredibly problematic for investors. Sure, those who commit crimes must pay their debt. However, the argument is that they should pay such debts to society, not shareholders.
Profit is the central motive behind private prisons, and the temptation to cut corners can endanger inmates and employees/contractors alike. So, Geo Group probably won’t be seen in a positive light. However, the company may receive a critical lifeline with the shifting tides toward conservatism in the political race. Therefore, I am bullish on GEO stock (albeit from a logical and not political perspective).
Trump May Win and That’s Good News for GEO Stock
Fundamentally, the difference between the Biden administration and what a potential Trump administration wants regarding the justice system is quite stark. Earlier this year, the current president proposed rescheduling marijuana under the Controlled Substances Act. In 2022, President Biden stated that he would pardon thousands of people convicted for “simple possession of marijuana.”
What’s the message here? In Biden’s world, you should be given a second chance if you’re not committing serious crimes. Stated differently, the president’s solution to the prison overcrowding problem is to spare room for the most egregious offenders.
On the other hand, there is Republican presidential candidate Donald Trump. The former president long ran on a law-and-order message. More relevant to GEO stock, the former president promised that if elected a second time, he would launch an “unprecedented crackdown on immigration,” per CNN. Trump also stated that he would conduct mass deportations.
Now, before such deportations and other actions can be taken, undocumented migrants must first be housed and processed. That’s one of Geo Group’s specialties, which is also why it’s so controversial. Fundamentally, the optics of forcibly housing immigrants – even if they are technically breaking the law – isn’t a good one in the eyes of many observers (and voters).
Unfortunately for the opposition Democrats, President Biden’s debate against Trump did not go well. It was an unmitigated disaster, with the Commander-in-Chief looking old, feeble, and unfit. That doesn’t necessarily mean that Trump performed well. He made several false statements (as did Biden, to be fair) and made some outrageous comments.
Yet because Biden not only performed poorly but also didn’t challenge a majority of Trump’s whoppers, the offensive statements have become normalized. In so doing, the former real estate mogul and reality television star may have an easy road to victory.
Plus, the longer an ineffective Biden stays on top of the Democratic ticket, the likelier it is that Trump and the Republicans would win handily. That’s good news for GEO stock.
Financials Make Much Sense for Geo Group
With the political framework forging in favor of the conservative side, it’s time to consider GEO stock under a likely positive backdrop. Rather than a holistically positive canvas where a presidential administration is looking to get people out of prison, the incoming one would potentially look to put more people in (at least temporarily in the case of deportations).
Cynically, that’s going to be an attractive narrative for GEO stock. For Fiscal 2024, analysts anticipate that sales may reach $2.44 billion, representing a 1.1% lift from last year’s haul of $2.41 billion. Experts believe revenue could rise 2.2% to $2.49 billion the following year. The high-side estimate calls for $2.54 billion. Given the political realities, these projections could be understated.
Another factor that favors GEO stock is the underlying financial performance. In the first quarter of Fiscal 2022, Geo posted sales of $551.18 million, just missing the analysts’ consensus view of $551.47 million. Since then, however, the private prison has beaten revenue estimates.
Wall Street’s Take on Geo Group
Turning to Wall Street, GEO stock has a Strong Buy consensus rating based on three Buys, zero Holds, and zero Sell ratings. The average GEO price target is $17.67, implying a 19.15% upside potential.
The Takeaway: Trump Victory Would be a Huge Win for GEO Stock
Let’s face reality: few people support private prisons like Geo Group. While the institution itself may be a necessity due to overcrowded public prisons, introducing the profit motive into the sector brings risks to both inmates and corrections officers. However, the surging Trump campaign team has long thundered a law-and-order message that cynically favors GEO stock. Given the likely changing of the guard, GEO is an intriguing idea for the politically agnostic investor.
