Tactical Partnerships And Operational Efficiency Ignite Promising Revenue Growth Outlook

Key Takeaways

• Expansion in state and federal contracts and increasing per diem rates suggest growth in revenue and improved net margins.
  
• Strategic capital allocation and labor market efficiencies support potential earnings growth and enhanced shareholder value.
  
• Dependency on key contracts and unpredictable government procurement create revenue instability, while legal settlements and flat growth with core partners threaten profitability.

Catalysts

Owns and operates partnership correctional, detention, and residential reentry facilities in the United States.

• CoreCivic's proactive steps to ready idle facilities for activation and respond to increasing government partner demands indicate potential for revenue growth, especially through responding to ICE's increased need for detention capacity. This could positively impact revenue and margins.
  
• New contracts with state partners, such as Wyoming and Montana, and increased per diem rates for occupancy, signify expansion in core operations that could lead to improved revenue streams and net margins.
  
• The company's focus on labor market normalization and efficiency efforts, including reduced temporary staffing costs and improved staffing levels, are likely to enhance net margins and operating income, supporting future earnings growth.
  
• The significant number of new RFIs and potential RFPs from ICE for additional detention capacity and services highlight opportunities for CoreCivic to expand federal revenues, which can directly boost revenue and earnings.
  
• CoreCivic's solid progress on its leverage targets and strategic capital allocation to maintain financial stability implies potential earnings growth through better financial flexibility, possibly leading to increased shareholder value through stock repurchase opportunities.

CoreCivic Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CoreCivic's revenue will grow by 1.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.9% today to 4.9% in 3 years time.
• Analysts expect earnings to reach $100.5 million (and earnings per share of $0.91) by about November 2027, up from $76.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.6x on those 2027 earnings, up from 31.9x today. This future PE is greater than the current PE for the US Commercial Services industry at 30.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.2%, as per the Simply Wall St company report.

CoreCivic Future Earnings Per Share Growth

Risks

• The closure of the South Texas Family Residential Center highlights potential volatility and dependency on certain contracts, which could impact CoreCivic's future revenue and profit stability.
  
• The termination of leases, such as the one with the State of California, indicates risks related to expiring contracts and the potential loss of future lease revenue, affecting earnings.
  
• Increased spending on legal settlements as seen in the Community segment could erode profitability and impact net margins if such events are recurrent or more common.
  
• Flat revenue growth from ICE, the largest partner, despite an apparent capacity need indicates potential occupancy and revenue risks in times of political or policy shifts.
  
• The unpredictable nature of government procurement, such as RFIs and RFPs, can lead to delays or changes, creating uncertainty in revenue forecasting and impacting future earnings consistency.

Valuation

• The analysts have a consensus price target of $24.2 for CoreCivic based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $32.0, and the most bearish reporting a price target of just $17.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.1 billion, earnings will come to $100.5 million, and it would be trading on a PE ratio of 32.6x, assuming you use a discount rate of 7.2%.
• Given the current share price of $22.01, the analyst's price target of $24.2 is 9.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.