CXW Stock Surged More Than 50%
Within 24 hours of Donald Trump’s victory in the 2016 U.S. presidential race, shares of Corrections Corp of America (NYSE:CXW) had skyrocketed by more than 50%.
Even a day after minor losses pared back the gains, CXW stock still came out 40% ahead of its previous levels. Investors turned bullish on the private prison vendor because they think the election of Donald Trump will be good for business.
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The incoming president ran on a “law and order” campaign, meaning his administration may impose stricter policing and prosecution of criminal activities. (Source: “Donald Trump and the Strange Bedfellows of the NYSE,” Yahoo! Finance, November 10, 2016.)
This would most likely be welcome news to Corrections Corp, since they are in the business of leasing private prison beds to the federal government.
The firm is squarely in what’s known as the prison-industrial complex, and it actually benefits the company when there are more incarcerated citizens. While that may be unpalatable for many Americans, it is the current model for U.S. prisons. The company’s fate is attached to higher rates of crime, drug abuse, and prosecution.
President-elect Trump has indicated in past statements that his administration would be much tougher on crime in inner city neighborhoods, not to mention his planned deportation of 11 million undocumented immigrants.
The deportation plan would cost an estimated $600.0 million, while also requiring that many of these people be held until transportation out of the country can be arranged. Investors boosted CXW stock this week because it would likely benefit from the implementation of such a program.
Criminal justice reformers would find these incentives perverse, no doubt, but they are clear enough from an objective standpoint.
But the biggest reason that CXW stock went soaring after the election was that private prisons were on their way out. A bipartisan coalition had made significant headway toward reform this year; they even got the U.S. Department of Justice to commit to ending its use of private prisons. (Source: “Justice Department officials to end the use of private prisons,” Fusion, August 18, 2016.)
Donald Trump’s victory puts that plan in jeopardy. Whomever Trump picks can reverse that decision on day one of being in office, making sure that companies like Corrections Corp of America keep getting rich off hefty government contracts.
