ICE law enforcement disputes become "poison"! US private prison stocks plummet, Q4 performance may be difficult to drive stock prices rebound

Under the influence of Trump's victory in the US presidential election, the stock prices of the two largest private prison operators in the US, GEO Group (GEO.US) and CoreCivic, Inc. (CXW.US), soared at one point. However, they are now facing a situation of depressed stock performance. Both GEO Group and CoreCivic, Inc. have seen significant declines in their stock prices from their record highs, with the largest weekly drop since at least November of last year expected to occur this week. These two companies were expected to benefit from the Trump administration's promise to detain millions of undocumented immigrants. The expectation that the Republican tax and spending bill would allocate hundreds of billions of dollars to the prison business supported stock prices until last summer. However, the actual situation did not develop as expected for these two companies. Despite high-profile law enforcement actions, the Department of Homeland Security has not yet met its targets for detaining undocumented immigrants. Noble Capital Markets analyst Joe Gomez said, "Although last year's 'Bigger, Better' law provided record funding, the increase in detainee numbers has been slower than many had initially expected." He stated that people had expected a rapid increase in detainees. CoreCivic, Inc. will announce its fourth-quarter earnings after the US market closes on February 11, while GEO Group will announce its fourth-quarter earnings the next day. Due to increasing uncertainty about federal funding prospects, investors expect these two stocks to experience at least a 7% fluctuation based on the derivatives market. Additionally, a significant decrease in crime rates across the US has cast a shadow over the entire prison industry's prospects. Meanwhile, public perception of government law enforcement actions is also putting pressure on these companies. Previously, Immigration and Customs Enforcement (ICE) officials shot and killed a US citizen for the second time during an operation in Minneapolis, sparking widespread condemnation of the agency's law enforcement actions and threatening increased oversight or funding cuts by Congress. Trump's "border czar" Tom Homan hinted at scaling back the operation in Minnesota, while another operation in Maine was abruptly terminated. GEO Group has contracts with ICE to provide location tracking and detention services for undocumented immigrants, with approximately 60% of its annual revenue of around $2.4 billion in 2024 coming from the US government. Similarly, about half of CoreCivic, Inc.'s nearly $2 billion in revenue comes from the US government. Raj Sharma, a stock analyst at Texas Capital Bank, said, "This is the business they are in. Every time ICE is in the news, private prisons are exposed." He pointed out that both companies face a significant amount of "headline risk". During the last earnings announcement, both companies were penalized by the market for lowering their profitability targets for 2025 - although CoreCivic, Inc. attributed the outlook revision to start-up costs related to new contracts with ICE. At that time, the CEO of the company stated that he expected a rebound in performance by 2026 as prison occupancy rates increased. GEO Group hoped to break the trend of stock price declines following three consecutive earnings announcements - although the company secured the largest new business in its history in a single year. Sharma noted that part of the problem is ICE's focus on detention at the expense of purchasing GEO Group's location tracking and electronic monitoring services, a service that CoreCivic, Inc. does not have. After legislation passed in July allocated $45 billion over four years to expand US detention capacity, both companies had expected a significant increase in contract volume. The Trump administration planned to increase immigration detention capacity to at least 100,000 bed spaces annually to deport 1 million people per year. Upon taking office, ICE was detaining about 40,000 people, a number that had risen to 73,000 by early this month. Matthew Tarter, chief investment officer and founder of Tuttle Tactical Management, said, "I don't think the previous expectations on immigration issues and how these two companies would benefit have materialized, and I'm not sure if they will in the future." He stated that these companies are not the "obvious Trump trades" that many had initially thought. However, Sharma and Gomez still expect these two stocks to outperform the market this year. Data shows that among analysts tracking these two companies, this is not a unique view - currently, there are no "hold" or "sell" ratings for the two companies. Gomez said, "The numbers will continue to grow, and this is solely based on the contracts they signed in 2025, which should provide a positive push for revenue and EBITDA for both companies. The current situation of these two stocks is basically where they were before the election."