Please ensure Javascript is enabled for purposes of website accessibility

Why Corrections Corp. of America Stock Plummeted Today

By Steve Symington - Aug 18, 2016 at 7:42PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The correctional facility company plunged as the U.S. Department of Justice decided to end its use of private prisons.

Image source: Getty Images.

What: Shares of Corrections Corp. of America (CXW 0.50%) plunged more than 35% Thursday after the U.S. Department of Justice revealed it will phase out its use of private prisons.

So what: More specifically, Deputy Attorney General Sally Yates noted that, thanks to the DOJ's Smart on Crime Initiative, which identified "reforms that would ensure more proportional sentences and effective use of federal resources," the country is seeing declining numbers in its prison population -- something fellow Fool Rich Smith astutely pointed out late last year. As such, Yates stated:

Today, I sent a memo to the Acting Director of the Bureau of Prisons directing that, as each private prison contract reaches the end of its term, the bureau should either decline to renew that contract or substantially reduce its scope in a manner consistent with law and the overall decline of the bureau's inmate population.  This is the first step in the process of reducing -- and ultimately ending -- our use of privately operated prisons. While an unexpected need may arise in the future, the goal of the Justice Department is to ensure consistency in safety, security and rehabilitation services by operating its own prison facilities.

For perspective, the decision also follows the release of a separate report from the DOJ last week, indicating privately operated prisons are less safe for both inmates and staff than those run by the Federal Bureau of Prisons.

Now what: Corrections Corp. of America won't feel the impact of the DOJ's decision immediately, but rather over time as each of its federal contracts expires. And investors will need to wait to hear from the company to better quantify how this changes its long-term direction. But for now, it's no surprise to see shareholders taking a big step back from CCA today, and I think it would be wise to watch its story unfold from the sidelines.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

CoreCivic, Inc. Stock Quote
CoreCivic, Inc.
CXW
$12.16 (0.50%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
331%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.