Private prisons hold on in hard times

Ashley Milne-Tyte Aug 6, 2008

Private prisons hold on in hard times

Ashley Milne-Tyte Aug 6, 2008


Kai Ryssdal: One more profit report for you to blame on the slowing economy: The Postal Service announced today it lost $1.1 billion dollars for the quarter that ended in June. Officials blamed higher fuel costs and less mail being sent in lean economic times — it’s down 5.5 percent from last year.

Even though we usually do think of it as a government operation, the post office is a private company and the same can be said for some prisons in this country. Most of them are government-run, but about 7 percent of the incarcerated population is housed in prisons run by for-profit corporations.

The biggest of those companies, Corrections Corporation of America, reports profits tomorrow. Like any other company, rising prices have raised their cost of doing business and its customers — federal, state and local governments — are facing tight budgets.

Ashley Milne-Tyte has this look at private prison prospects.

Ashley Milne-Tyte: Private prison companies aren’t too badly hit by the rising cost of food, for example, because they lock in prices in multi-year contracts with suppliers.

Kevin Campbell is an equity analyst with Avondale Partners. He says private prisons’ basic operating costs may be rising overall, but prisons could benefit from the states’ financial problems.

Kevin Campbell: Because budgets are tight, it’s hard for states to commit to building their own new prisons, which then has the tendency to exacerbate the overcrowded problem and therefore increases demand for private sector beds.

And that demand doesn’t show any sign of slowing. Sean Smith is an equity analyst with Zacks Investment Research.

Sean Smith: That prison population has been growing over the last 10 years in the U.S. at about 3.5 percent annually. You know, the long-run demand picture is still there for the private prison companies.

He says the burgeoning number of prisoners is a depressing thought… unless you’re an investor.

Kevin Campbell says if a new administration decided to overhaul drug enforcement rules, prisoner numbers could decline, and revenues with them. And he says both Corrections Corporation of America and a rival have done well lately by detaining illegal immigrants.

Campbell: And that probably is 13 to 15 percent of their total revenues would be my guess and so if there’s some change in immigration enforcement policy, some relaxation of enforcement, that I think would be viewed as a negative as well.

Corrections Corporation of America’s stock has gained more than 20 percent since February. Both analysts say it’s a buy.

I’m Ashley Milne-Tyte for Marketplace.

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