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DHS Inquiry Into Corrections Corp. And GEO Group Will Reveal Problems

Summary

The DHS is following the DOJs lead and launching an inquiry into its usage of private prisons.

GEO and CXW get almost half their revenue from the DHS.

There is substantial anecdotal evidence of systemic problems regarding adequate medical care at CXW and GEO facilities.

On Monday August 29th Department of Homeland Security Secretary Jeh Johnson announced that the DHS was going to reevaluate the departments use of private prisons. Specifically he stated that he had directed the Homeland Security Advisory Council "to evaluate whether the immigration detention operations conducted by Immigration and Customs Enforcement should move in the same direction as the Bureau of Prisons." In our previous article about the DOJ's decision to phase out the use of private prisons, we warned investors that there was a very real risk that the DHS would follow the DOJ's lead.

While Corrections Corp (NYSE:CXW) and The GEO Group (NYSE:GEO) got only 9% and 11% of their revenue from the Bureau of Prisons the DHS represents a much larger component. For CXW 51% of their revenue comes from ICE. For GEO the figure is approximately 34%. This move by the DHS is the real test of whether or not CXW and GEO will survive in their current form.

So, what is the DHS likely to find when they conduct their evaluation? Well unlike the Bureau of Prisons there is not a lot of scholarly research and studies comparing privately run facilities and publicly owned and run facilities (the research all looks at state and federal prisons). Immigration detention centers are rather new and the immigration detention boom only started in 1996 with the passage of the Illegal Immigration Reform and Responsibility Act with a further mini boom due to the expansion of the Border Patrol post 9/11 and an...


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