Corrections Corp Of America (NYSE:CXW)’s contract with the Immigration and Customs Enforcement (ICE) has been amended. The move comes after recent media reports portrayed the contract as controversial. One of the issues raised about the contract was that Corrections Corp was being paid as though its facility was 100% leased, yet the industry standard is that payment to private prisons is tied to occupancy of the facility.
The facility whose contract has been amended is the South Texas Family Center in Dilley, which has a bed capacity of 2,400.
Contract period extended as rate reduced
The revised agreement extends the duration of the contract through 2021. However, the payment rate has been clipped as ICE will not pay a lower monthly rate for the use of Corrections Corp’s prison facility.
The parties can terminate the contract upon issuing a 60-day notice.
Uncertainty removed
ICE is extending the prison facility contract with Corrections Corp at a time when the southwest border is struggling with an increase in the number of illegal immigrant families. Last month, the volume of immigrant families detained at the border reportedly rose more than 80% on a year-over-year basis.
Perhaps that explains why ICE decided to extend the contract with the prison operator despite the Department of Justice announcing that it would end the use of private prisons.
The controversy that surrounded the earlier contract that ICE had with Corrections Corp concerning in the Dilley facility provoked the DoJ into saying it would begin to phase out the practice of using private prison facilities.
The Department of Homeland Security also recently asked ICE to start reviewing its use of private prisons.
In the meantime, the surge of illegal immigrant families pouring into the U.S. at the southern border should be robust business for prison contractors.
Earnings expectations
Corrections Corp is expecting to post EPS of $0.47 to $0.48 for 3Q16. For the year, the prisons operator is looking for EPS in the band of $1.78 to $1.81.
Corrections Corp posted EPS of $0.69 on revenue of $463.3 million. The results beat the consensus estimates.