Shares of prison real estate investment trust (REIT) The GEO Group (GEO 3.95%) fell a painful 19.5% in February according to data from S&P Global Market Intelligence. The big drop, however, really took place after the company reported earnings in the middle of the month. Clearly investors didn't like the update.
2020 wasn't a great year. The REIT's adjusted funds from operations (FFO), a metric that's similar to earnings for an industrial company, came in at $2.51 per share. That figure was $2.75 in 2019, so there was a nearly 9% drop there. That said, the bigger concern was really around the future, with the REIT noting in its earnings release, "On January 26, 2021, President Biden signed an executive order directing the United States Attorney General not to renew U.S. Department of Justice ("DOJ") contracts with privately operated criminal detention facilities."
Two agencies use The GEO Group's services, so this is a potential issue. Worse, when you tie this headwind into management's 2021 guidance the story looks pretty ugly. Specifically, the REIT is calling for adjusted FFO to come in at around $2.02 per share this year, which is roughly the midpoint of guidance. That's a nearly 20% decline from 2020 after an already notable decline in 2020. No wonder investors sold the stock after earnings.
The GEO Group is telegraphing a rough year in 2021, including the potential for customer headwinds driven by political issues. That's not a great backdrop. Conservative investors should probably watch this name from the sidelines while more aggressive types will want to think carefully about the short- and long-term prospects here before jumping aboard.