A hard line means hard cash
AS the dust settled on Donald Trump’s election victory, what businesses did investors think would benefit most from his return to the presidency? Tesla? Big oil? Rustbelt manufacturers? No: two firms that lock people up. Shares in GEO Group and Core Civic, which own and run prisons, soared by two-thirds in the three days after the election, beating the rest of America’s 1,500 most valuable firms.
Investors’ reasoning may be cold, but it is clear: Mr Trump takes a hard line on criminal justice. He is expected to revoke Joe Biden’s executive order phasing out the federal government’s use of private prisons, having rescinded a similar edict by Barack Obama in his first term. Other votes from election day may also provide a boost. Californians approved a ballot measure increasing penalties for some thefts and drug crimes, including prison terms for sellers of certain drugs.
More important is Mr Trump’s promise to secure America’s borders by deporting a record number of illegal immigrants. Although privately run prisons hold less than one-tenth of the country’s inmates, private owners and operators supply almost all the detention beds used by US Immigration and Customs Enforcement (ICE), the agency responsible for removing migrants. GEO and Core Civic already earn 43% and 30% of their revenue, respectively, providing detention centres, electronic monitoring and more to ICE.
Mr Trump’s ambition implies much more business. Between them GEO and Core Civic have about 36,000 unused beds suitable for ICE (thanks in part to Mr Biden’s order on prisons). That would almost double ICE’s current funded capacity of 41,500. GEO’s boss, Brian Evans, has estimated that contracts for 18,000 extra beds would reap his firm around $400m a year—a 15% rise in total revenue. Electronic monitoring, he added, could be scaled up too.
Investors, though, may be too optimistic about the divisive industry. Similar enthusiasm abounded after Mr Trump’s first victory in 2016: Core Civic’s shares rose by as much as 60% in the hours after the election. And before the pandemic, ICE did detain more people. But amid public distaste, especially at the separation of immigrant children from their families, social activists applied pressure. The value of GEO and CoreCivic sank after a string of banks ceased doing business with the industry.
Will this time be different? GEO and CoreCivic have worked to insulate themselves from squeamish investors, paying down debt and reducing their reliance on banks. The wave of socially activist investing has receded since Mr Trump’s first term. Still, the private-prison industry could again come under fire. Mass deportations may prove harder to watch on the news than they were to vote for.
This article appeared in the Business section of the print edition under the headline “Hard line, hard cash” (Nov 21st 2024)
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