NEW YORK (TheStreet) -- Shares of Corrections Corp. of America (CXW) - Get CoreCivic, Inc. Report were sliding in early-afternoon trading on Wednesday as Canaccord analysts said that private prisons "aren't going anywhere," but that the Nashville-based private prison operator and its peers still face the risk of contract cancellations.
Corrections Corp. and the Boca Raton, FL-based private prison manager GEO Group (GEO) are trading at or above all time highs, the firm noted. This could either mean that the stocks are cheap, or that there is substantial risk of more contract cancellations.
There is minimal risk to contracts that aren't held with the Federal Bureau of Prisons (BOP), Canaccord said.
Last week, the BOP said it wouldn't renew its contract with GEO Group's Folkston, GA-based D. Ray James Correctional Facility. The company had previously reported that the BOP would extend the contract through Sept. 30, 2018.
"However, we maintain concerns surrounding BoP contract cancellation headlines, a likely CXW dividend cut, and risk of a CXW covenant breach that could all weigh on both GEO and CXW shares in the near-term," Canaccord continued in an analyst note. "As such, while we believe most of these concerns are priced in, we believe they could limit upside to both stocks."
Canaccord lowered its price target for Corrections Corp. to $21 from $30. The firm also cut its price target for the GEO Group to $28 from $38.
Both stocks are likely to experience sustained volatility until investors understand there's limited risk to non-BOP contracts. At that point, the stocks should trade closer to their historical free cash flow yields, Canaccord added.
Shares of GEO Group were down in early-afternoon trading today.
Separately, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate CORRECTIONS CORP AMER as a Hold with a ratings score of C+. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and notable return on equity. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, poor profit margins and deteriorating net income.
You can view the full analysis from the report here: