Opportunity Awaits in a Seedy Industry
TL;DR
In a country as divided as the U.S., there’s not much we all agree on. But admitting that industrial complexes wield too much power isn’t a contentious issue. Unfortunately, even when we do agree, it’s unlikely to change. Investing in this company might be the silver lining.
In 2023, we published a two-part series about America’s military industrial complex. We noted how it results in budget allocations that are ever-increasing and never questioned. We also explained how you could do well investing in any number of military contractors that — quite literally — price-gouge the federal government.
Five of our six recommendations from that issue on June 21, 2023, are showing double-digit gains while paying sizable dividends. (The only loser was Boeing, whose airplanes have literally been falling apart.)
Today, we’re going to discuss another uniquely American racket: the prison industrial complex. And, of course, there will be an investable takeaway since — like all industrial complexes — they’ve become so firmly ingrained in our society, there’s little to no hope of them ever being reformed.
Private Prisons = Big Business
There are currently 1.8 million people incarcerated in America’s prisons — the most by far of any country on Earth. To put that figure into perspective, that’s 4.6 times the entire population of The Bahamas, and more than the combined populations of Fiji, Iceland, Barbados, Samoa, Saint Lucia, Grenada and Tonga.
Last week, in a flurry of executive orders, President Trump signed a directive reversing President Biden’s ban on the Department of Justice entering into contracts with private prisons. The effort by the former administration aimed to curtail the industry, which is famous for leeching taxpayers’ dollars and lobbying lawmakers to ensure prison cells remain filled and billed to Uncle Sam.
But if you follow the money, the rationale for the reversal is as clear as day. And if you’re thinking it’s to make America safer, guess again. Trump’s second choice for attorney general (after the plan to give the job to a human-trafficking, drug-addicted, statutory rapist fell through) is Pam Bondi — former Florida attorney general and current lobbyist who has represented one of the largest private prison companies in the world.
Here’s an excerpt directly from the U.S. Senate Committee on the Judiciary:
Bondi lobbied for The GEO Group, a private prison company that has faced criticism for safety violations, providing inadequate health care, and poor management practices. These actions have negatively impacted the welfare and rights of incarcerated individuals and immigration detainees, and The GEO Group stands to earn hundreds of millions of dollars during the Trump Administration, as ICE is its largest source of revenue.
But hey, at least she didn’t transport underage girls across state lines, feed them narcotics and engage in for-hire coitus. So bigly an improvement.
A Festering Byproduct of the Prison Industrial Complex
Founded in 1984 by current CEO George Zoley, who we imagine was the inspiration for The Simpsons’ character Mr. Burns, the Boca Raton-based GEO Group (GEO) owns or operates prisons in the U.S., U.K., Australia and South Africa. Its 106 facilities house 86,000 beds.
The company also operates migrant detentions centers. And that’s essential since the first bill Trump’s expected to sign into law during his second administration, which could happen as soon as this week, aims to “increase the detention of certain undocumented immigrants.”
The problem is that ICE claims enforcing the law will cost $26.9 billion in its first year. ICE’s annual budget is just $9 billion and the agency would require 110,000 more detention beds to pull off Trump’s plan. Enter GEO Group and its network of prisons and detention centers, many of which are located in border states.
We’re not saying the system is rigged. But we’re also not saying it isn’t. GEO Group’s stock jumped 87% after Election Day and is up 119% since. We have a hunch that momentum is likely to continue as Trump’s immigration policies come to fruition.
And while conventional wisdom says it’s imprudent to buy high on stocks, conventional wisdom also goes out of the window when a Florida attorney general-turned-private prison lobbyist becomes the next U.S. attorney general in the wake of the president reversing an executive order established by the prior administration that banned private prison contracts and passing a law that will directly benefit the Florida-headquartered private prison company that said former Florida attorney general lobbied in favor of.
We know, that’s a lot. Take your time.
If You Can’t Beat ‘Em, Invest in ‘Em?
Let’s drill into the company’s fundamentals, which haven’t been as hot as the hell that GEO Group’s human rights-violating executives and board members will likely be rotting in come their demise. (Read about their violations here, which include failing to redress dilapidated and rat-infested facilities, violence against inmates, medical neglect and forced labor.)
Revenue hasn’t been too spicy. No word yet on if Matt Gaetz has been invited to join the board in order to shake things up, though. Total revenue in 2019 was $2.48 billion, $2.35 billion in 2020, $2.26 billion in 2021, $2.38 billion in 2022, $2.41 in 2023 and $2.42 for 2024 — hardly inspiring.
Earnings have been equally tepid, with the company missing on EPS estimates four out of the past five quarters. It’s worth noting, however, that the company met or beat EPS expectations in nine of the preceding 10 quarters.
So why do we think GEO Group is a “Buy”? The company next announces earnings on Feb. 26, 2025, and while analysts’ expectations are tempered at 22 cents/share, we believe the company’s forward guidance — largely indicative of and based on Trump’s policies — will be a price driver.
Additionally, the stock recently pulled back, falling nearly 14% over the past five trading sessions. So while shares have significantly appreciated since Election Day, there’s reason to believe the rally isn’t done and may not be done for some time well into Trump’s second term. This pullback could be a decent window for entry.
That assertion is backed by our favorite technical indicator — the Relative Strength Index (RSI) — which on GEO’s one-year chart recently pushed into “overbought” territory but has been falling steadily since January 22 (blue arrow in the chart below).
If the RSI continues its descent, the stock is likely to use its 50-day moving average as support like it did in early November (green arrow in the chart above) before bouncing and running up in price.
At that time, GEO’s one-year technical chart displayed an extremely bullish pattern called a golden cross — when the short-term moving average crosses above the long-term moving average (also indicated by the green arrow above). Trading volume surged immediately thereafter and shares gapped up on November 5, which is also a bullish signal.
The unpredictability of this administration could prove to be a headache for investors over the next four years. But one thing is certain: Trump is committed to his detention and deportation plans, and GEO Group is one company that will surely benefit from those.
