Please ensure Javascript is enabled for purposes of website accessibility

Why The GEO Group Stock Crashed Today

By Rich Smith - Jan 26, 2021 at 3:11PM

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

President Biden plans to curtail the U.S. government's use of private prisons.

What happened

Shares of GEO Group (GEO -0.86%), a real estate investment trust (REIT) that develops and operates private correctional facilities for government clients, sank Tuesday on news that President Joe Biden plans to scale back the federal government's use of private prisons.

GEO Group stock was down 10.3% as of 3:10 p.m. EST.  

Black and white picture of a prisoner staring through a jail cell window

Image source: Getty Images.

So what

According to an article published by Reuters, the Biden administration's policy will be to have the Justice Department decline to renew contracts with operators of private prisons. While that's short of an absolute ban, it doesn't bode well for operations such as GEO Group.

"Private prisons profiteer off of federal prisoners in less safe conditions for prisoners and correctional officers alike," explained the White House in a statement. The administration did not state a specific timeline for when it would begin declining to renew contracts.

Now what

Although technically an international business, according to data from S&P Global Market Intelligence, GEO Group depends on the U.S. for 89% of its $2.4 billion in annual revenues, and already, some of those revenues look to be at risk. Just six days ago -- Inauguration Day, though that may not have been the reason -- we learned that the Federal Bureau of Prisons would decline to renew an option for GEO Group to manage the 1,878-bed Moshannon Valley Correctional Facility in Pennsylvania, when that contract comes up for renewal on March 31.  

Although the company says it will try to "market the ... Facility to other federal and state agencies," if it fails to find a new customer, this single contract non-renewal could cost GEO $42 million in lost revenues per year -- nearly 2% of its annual revenues.

Expect to hear the steady drip-drip of this company's revenues leaking away over the next four years, if not longer.

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

The GEO Group, Inc. Stock Quote
The GEO Group, Inc.
$6.94 (-0.86%) $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
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

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.