recession proof investment? PRISONS

here’s a stock story that you might be a little hesitant to share with your more narrowly-minded liberal friends. the economy is slowing, and times are getting tougher. real wages are going nowhere. central bankers around the world are pulling liquidity out of the markets trying to keep ahead of inflation. stagflation and/or recession seem well within the realm of possibility in the next 6 to 12 months. in more difficult economic times, people generally behave a little more badly. they steal, they break things, they get drunk, tempers flare. they get mad at illegal immigrants who they perceive as the source of their employment woes.
how do you capitalize on this emerging trend you ask? well luckily the private sector is lending a big hand to uncle sam by incarcerating people more efficiently than the government can. right now, they are making a KILLING on all this illegal immigrant hysteria. business is BOOMING!

By the fall of 2007, the administration expects that about 27,500 immigrants will be in detention each night, an increase of 6,700 over the current number in custody. At the average cost these days of $95 a night, that adds up to an estimated total annual cost of nearly $1 billion.

[…]

Wall Street has taken notice of the potential growth in the industry. The stock of Corrections Corp. has climbed to $53.77 from $42.50, an increase of about 27 percent, since February when President Bush proposed adding to spending on immigrant detention.

Geo’s stock rose about 68 percent in the period, to $39.24 a share from $23.36.

the bread and butter are still regular old prisoners, but the margin on illegal immigrants is pretty sweet. in the following excerpt from the article i have bolded a sentence that i feel indicates the possibility for exponential growth in the event of some sudden “market event”:

While the companies would not comment on profit margins from their
immigration business, Wall Street analysts said that detention centers
produce profit margins of more than 20 percent.

That compares with margins in the mid-teens for traditional prison management, they
said, because prisoners are provided with more costly services like
high school degree programs and recreational activities.

Even with the expected growth in the number of immigrant detainees, the main
source of income for the private prison companies will continue to be
revenue from state and federal governments for housing regular inmates.

The state and local prison population totaled more than 1.5
million last year, with about 100,000 of those held in privately
managed prisons. But the number of state and federal inmates rose by
just 1.4 percent from June 2004 to June 2005, slower growth than the
average 4.3 percent annual increases from 1995 to 2000.

By contrast, the number of immigrants in detention is expected to increase
by about 20 percent over the next three months alone.

Federal immigration contracts generated about $95.2 million, or 8 percent, of
Correction Corp.’s $1.19 billion in revenue last year, and about $30.6
million, or 5 percent, of Geo’s $612 million total income.

In the first quarter of 2006, Corrections Corp.’s detention revenue rose
to $25.5 million. The federal immigration agency is now the company’s
third-largest customer, after the federal Bureau of Prisons and the
United States Marshals Service.

The detention market is projected to increase by $200 million to $250 million over the next 12
to 18 months, according to Patrick Swindle, a managing director at
Avondale L.L.C., an investment banking firm that has done business with
both Geo and Corrections Corp. He said that a company’s capacity would
play an important role in how much of the market it would be able to
capture.

The company “currently has 4,000 empty beds in their system,” Mr. Swindle said. “They are bringing on an additional 1,500 beds within the border region.’’

“Reasonably, about 3,000 to 4,000 beds could be made available” for immigrant detention, he said.

Having empty cell space that can be made available quickly is
considered an advantage in the industry since the government’s need for
prison space is often immediate and unpredictable.
Decisions about
where to detain an immigrant are based on what is nearby and available.
Immigration officials consider the logistics and cost of transportation
to the detention center and out of the country.

2 comments

  1. Wall Street has taken notice of the potential growth in the industry. The stock of Corrections Corp. has climbed to $53.77 from $42.50, an increase of about 27 percent, since February when President Bush proposed adding to spending on immigrant detention.

    While the companies would not comment on profit margins from their
    immigration business, Wall Street analysts said that detention centers
    produce profit margins of more than 20 percent.

    That compares with margins in the mid-teens for traditional prison management, they
    said, because prisoners are provided with more costly services like
    high school degree programs and recreational activities.

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