Two of the largest private prison companies in the United States, CoreCivic and the GEO Group, could lose about $1 billion, representing a quarter of their revenue within a year between them after the new executive order signed by President Joe Biden to reduce government usage of private prison facilities.
This is coming after the shares in both companies took a hit on Tuesday after Biden signed an executive order to roll back the U.S. government’s use of private prisons in line with his administration’s initiative of tackling systemic racism.
As gathered, the new limits set by the US president left both companies’ stocks near their lowest levels in more than a decade.
Shares of both companies had already taken a hit in the past year after COVID-19 restrictions at the U.S.-Mexico border and capacity restrictions for health reasons forced the facilities they operate for U.S. Immigration and Customs Enforcement (ICE) to function below capacity.
Both stocks have fallen more than 80% since the early days of Donald Trump’s presidency when his hardline immigration policies filled ICE facilities with detained immigrants.
Biden’s current order applies to the Justice Department’s federal contracts with private prisons, which would include facilities used by the Bureau of Prisons and U.S. Marshals Service, though the order did not specifically name those agencies. The order does not apply to the Department of Homeland Security and therefore not to ICE facilities.
Meanwhile, investors had earlier raised concerns that the incoming Biden administration as unfriendly generally to the use of private prisons.
“It’s not a positive for GEO Group or CoreCivic, but it also doesn’t blow up the business model,” said Joe Gomes, senior research analyst at Noble Capital Markets.
In 2019, CoreCivic earned 5% of its total revenue from its federal contracts with the Bureau of Prisons and 17% from the U.S. Marshals, or a total of about $440 million. Its largest customer in 2019 was ICE, accounting for 29% of the business.
At GEO Group, U.S. Marshals and Bureau of Prisons accounted for 23% of total revenue in 2019, or about $570 million.