The Donald Trump era has been good for private prison operator GEO Group and its stockholders. As the president pushes a more muscular approach to immigration enforcement, investors expect the business of incarceration for profit to grow more lucrative.
Shares of GEO Group (NYSE: GEO) jumped 11 percent in June, a month when stories of immigrant children being separated from their parents dominated the news — although the Boca Raton-based company has made a point of distancing itself from that contentious policy.
“The facilities we manage on behalf of ICE do not and have never housed unaccompanied minors,” GEO Group spokesman Pablo Paez said in a statement.
Even so, GEO Group shares jumped June 20, after Trump said Immigration and Customs Enforcement would stop separating families caught crossing the Mexican border. Instead ICE will hold parents and children together — a policy that creates new demand for detention centers.
Investors are betting that the federal government’s stricter stance toward illegal immigration will mean more federal contracts — and higher revenues — for GEO Group. The head of GEO Group’s main rival, CoreCivic, sees a boom for private prison operators.
“What we’ve described here recently to investors is probably the most robust kind of sales environment we’ve seen in probably 10 years,” CoreCivic Chief Executive Damon Hininger said in a June presentation to investors.
GEO Group Chairman and Chief Executive George Zoley has been more measured in his public comments, but he has delivered a similar message.
“There’s been a steady increase in illegal border crossings and it, I guess, parallels the steady increase of the census in our ICE facilities,” Zoley told analysts in late April. “We expect that to continue to increase our occupancy and present opportunities for new facility contracts maybe in the next budget cycle.”
Running ICE detention centers a growing part of GEO Group’s business
Zoley said he expects Trump to ask for “a significant increase” in detention cells for ICE in his 2019 budget.
Running ICE detention centers is a small but growing part of GEO Group’s business, and the company already has been landing contracts from the Trump administration. In April 2017, GEO Group said it won an ICE contract to develop and run a 1,000-bed in Conroe, Texas. That detention center is scheduled to open by the end of 2018.
And in May 2017, GEO Group said it landed two 10-year contracts with the Federal Bureau of Prisons to hold criminal aliens.
GEO Group operates prisons and detention centers for federal and state governments. It also runs facilities in Australia, Canada, Great Britain and South Africa.
GEO Group reported a profit of $146 million in 2017 on revenues of $2.3 billion, compared to a net income of $148 million on sales of $2.2 billion in 2016.
Those numbers reflect no dramatic shift in GEO Group’s fortunes during the first year of Trump’s term. In fact, GEO Group’s profit margin was slightly higher during the final year of Barack Obama, whose Justice Department caused GEO Group shares to plummet with an August 2016 announcement that it would stop renewing contracts with private prison operators.
But investors are more focused on the future: In the government-driven business of running private prisons, share prices rise and fall on the political winds in Washington.
GEO Group shares soared 20 percent the day after Trump won the presidency
On Nov. 8, 2016, with the world certain Hillary Clinton would win the White House, shares of private prison operator GEO Group languished at $15.92. The next day, after Trump’s surprise win, GEO Group shares soared 20 percent.
GEO Group has cultivated a cozy relationship with Trump. In 2016, the company and its political action committee gave $275,000 to Trump’s super PAC and $5,000 to Trump’s campaign, according to the Federal Elections Commission. After Trump won, GEO Group gave $170,000 to the Trump Victory Committee, a committee that supports Trump and the Republican National Committee.
“These contributions should not be construed as an endorsement of all policies or positions adopted by any individual candidate,” Paez said.
In another sign of GEO Group’s cozy relationship with Trump, the prison company in October hosted its four-day annual conference at Trump National Doral, an 800-acre property owned by the president, The Washington Post reported. Executives and wardens gathered for meetings, dinner receptions and golf outings.
Private prisons long have been an ideological flash point. Conservatives see for-profit prisons as efficient alternatives to sclerotic public bureaucracies. Liberals view the companies as unsavory profiteers.
After Geo Group in 2013 paid $6 million to Florida Atlantic University for naming rights to the school’s football stadium, an outcry from students and faculty led FAU to decline the deal.
Critics and regulators frequently have cited shortcomings at GEO Group’s facilities. Among those who have called out GEO Group’s practices over the years are federal regulators in Mississippi and Arizona, state regulators in Florida and Texas and a jury in Oklahoma.