The GEO Group (GEO), mcap=$1bn, price $8.53 vs $8.23

$GEO pitch:
– For-profit prison operator – 60% of op profit from prison business and 40% from electronic monitoring.
– Equity upside from strong cashflows and focus on deleveraging.
– Well-protected downside already low valuation (6xEBITDA) and value of land+buildings.
– Undergoing transformational change after conversion to C-corp from REIT and the shutdown of the construction business segment.
– The new GEO will focus available FCF on deleveraging and exit of non-core businesses – no risk of dilutive M&A or growth investments.
– Minimal risks from federal aims to reduce the prison population in the US as half of the prison revenue is coming from states.

$GEO valuation:
– Trades at 6x EBITDA, same as its nearest competitor.
– Depreciated BV of land and buildings is only slightly below the current EV.
– With the same multiple and flat EBITDA, equity would reach $12/share purely from cash generation & deleveraging by 2024.

Exp. gain: +50% to $12/share by 2024. Upside scenario +100%.

Full GEO write-up (free guest account required):

Leave a Comment