July 2, 2008 - Price:$27.07;P/E:25;PSR:2.27;ROE:11.5;Yield:0;D/E:.9

Corrections Corp. of America (CXW-NYSE) together with its subsidiaries, owns and operates privatized correctional and detention facilities in the United States. The company owns, operates, and manages prisons and other correctional facilities, as well as provides inmate residential and prisoner transportation services for governmental agencies. It also offers healthcare services, including medical, dental, and psychiatric services; food services; and work and recreational programs.

Here's the good news for CXW and the bad news for the general population: 1 in every 100 American adults is in prison. The segment of males between the ages of 18 and 24, the group most inclined to commit crimes, is increasing. To meet this potential demand, the company added 5000 new beds in the last year and expects to put another 6900 in place in 2008. Unfortunately, the trends suggest they will be filled. Fortunately for an investor, the trends suggest the beds will get used.

This stock had a good rise between 2000 and 2007, going from 80 cents a share (split adjusted) to $33.40. It's pulled back since then and traded in a rather narrow range. It got ahead of its earnings growth and valuations were sky high. Now they're closer to earth.

Earnings have grown by 14.4% a year, on average, over the last 5 years. In the next 5, analysts see growth at 16% a year. In 2005, earnings per share (eps) were 61 cents, then hit 86 cents, followed by $1.06 last year. This year, predictions are for $1.25 (with a range of $1.23 to $1.28) and next year at $1.50 (with a range of $1.45 to $1.60).

Sales increased by 19.5% annually on average for the last 5 years with expectations of slower growth for the next 5 (averaging 6.5%). Total sales have gone from $1.192 billion in 2005 to $1.478 billion last year. This year look for $1.62 billion and $1.77 billion next year.

Recently, CXW received new contract awards for additional inmates at its California, Arizona and Florida centers which should bring higher management fees. But one facility it owns showed a decrease in population, the one in Washington, DC. If past trends repeat, given the demographics (higher 18 to 24 year old males), this one prison, and all others, should see a rise in occupancy.

To prove this, in the March quarter, the average daily compensated population (paid prisoners) went up by 6.1% over the same quarter last year. To facilitate the growing demand, 6900 new beds will be in place by the end of the year. In one facility alone, bed count will rise by 33%.

More numbers: Debt is 45% of capital. Market Cap is $3.4 billion with 125 million shares outstanding. Net profit margin is 8.95%. Current assets to current liabilites are 1.45. Book Value is $10.10. About 85% of the stock is held by institutions. There is no dividend.

CXW had a great run and settled down in the last year. It needs to deliver better than expected earnings to get investors excited again. With the poor economy and rising young adult male population, it seems there's a good possibility of solid earnings surprises. Unfortunately for the victims.
Fortunately for investors.

- Company Web site: www.correctionscorp.com

- Ted Allrich