Biden’s Dilley detention closure sends CoreCivic stock into freefall: Should you buy?

By:
on Jun 11, 2024
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  • Biden administration's closure of Dilley detention center impacts CoreCivic.
  • Estimated $55 million revenue loss prompts earnings adjustment.
  • Technical analysis suggests stock re-enters bear territory; caution advised.

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In a startling turn of events, CoreCivic Inc (NYSE:CXW) finds itself grappling with a significant downturn. On Tuesday, the stock plummeted over 20% in pre-market trading. The cause? Biden administration’s decision to shutter the Dilley detention center in Texas, sending shockwaves through the market. This decision follows a previous 4% decline the stock experienced just the day before.

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Impact of the closure

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The closure of the Dilley facility, shared with Target Hospitality (NASDAQ:TH), comes as a direct result of the administration’s move to terminate their contracts. The decision, attributed to the center’s higher operational costs compared to other Immigration and Customs Enforcement (ICE) facilities, has profound implications.

For CoreCivic, the impact is stark, with an estimated annual revenue loss of approximately $55 million. Additionally, CoreCivic is adjusting its earnings expectations, foreseeing a reduction in earnings per share by approximately $0.38 to $0.41 due to the termination of the agreement. The company’s financial guidance for 2024 is now suspended, adding further uncertainty to its outlook.

This news reverberates against the backdrop of a broader immigration policy shift by the Biden administration. With more than 6 million migrants crossing into the U.S. illegally, there’s mounting pressure to address border security.

Q1 earnings and future trajectory

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The company reported robust first-quarter results for 2024, surpassing both top-line and bottom-line estimates. CoreCivic’s first-quarter funds from operations (FFO) of $0.46 per share beat expectations by $0.12, while revenue of $500.7 million marked a 9.3% year-over-year increase, exceeding estimates by $22.77 million.

Looking beyond the immediate turmoil, CoreCivic’s fundamentals remain noteworthy. The company operates a diverse portfolio of correctional and detention facilities, catering to government entities at various levels. Despite recent setbacks, its business model underscores stability, with significant real estate assets and a track record of profitability.

Analysts, however, might adopt a cautious stance in light of recent developments. With earnings revisions likely and uncertainty looming, ratings and price targets could see adjustments. Investors, therefore, must tread carefully, weighing the evolving narrative against CoreCivic’s intrinsic value.

As we delve deeper into CoreCivic’s trajectory, it’s crucial to assess the stock’s performance through a different lens. Technical analysis can provide insights into potential price movements, guiding investors through the turbulence ahead. So, let’s delve into the charts and decipher the signals shaping CoreCivic’s journey in the stock market.

Bears regain control

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CoreCivic’s stock saw a severe prolonged downtrend between March 2015 and December 2020, which saw it crashing from above $40 to below $6. After that, the stock spent most of its time trading within the $6-$14 trading range for more than a year. It broke out from this range late last year, but today’s move implies that it will fall back into this range.

CXW chart by TradingView
Traders who are bearish on the stock can initiate a short position below $14, keeping a stop loss at the recent swing high of $16.54. If the downward move continues, we can again see the stock crashing to $6 levels in the coming weeks or months where they can book profits.

Investors who are bullish or want to take a contrary trade by purchasing the stock must refrain from doing so because, after today’s move, it has once again entered the bear territory in the long-term charts. Any bullish position should be considered only if the stock again starts trading above $14.  

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