Insiders buying up shares can be a bullish signal for a stock. These executives, directors, and major shareholders are privy to their company's inner workings and strategy, potentially giving them a unique edge when it comes to identifying prime buying opportunities in the stock.
So, when the chairman of a company buys shares worth more than $624,000, investors might want to sit up and take notice. That is exactly what just happened with the shares of GEO Group (GEO) recently. What drove the chairman of this private prison stock to make such a huge investment this election year? Let's try and find out.
About GEO Group Stock
Founded in 1984, GEO Group (GEO) is the second-largest private prison company in the U.S. It designs, finances, develops, and provides support services for private prisons, immigration processing centers, and community re-entry facilities. Outside of the U.S., it also operates in Australia, the United Kingdom, and South Africa. Its market cap currently stands at $1.85 billion.
GEO Group stock has rallied 34.4% on a YTD basis, comfortably outperforming the broader equities market.
GEO Chair's First Insider Buy Since 2021
On March 14, GEO Group Executive Chairman George Zoley bought 50,000 shares of the company at an average price of $12.4805 per share, with the purchase totaling about $624,025. The purchase increased Zoley's stake in the company to 3.0177%.
This was Zoley's first purchase of GEO shares - or for that matter, any company insider's - in almost three years. It was on June 15, 2021, that Zoley last bought 166,644 shares of the company at an average price of $6.7452 per share, shelling out about $1.1 million.
In the intervening period, GEO stock has more than doubled, and Brian Evans, a GEO Group veteran who previously served as the longtime Chief Financial Officer, was named as the new CEO.
Will GEO Bring Its Dividend Back?
In its Q4 earnings report, released in mid-February, GEO Group's revenue and earnings slid from the previous year, although they managed to surpass the Street estimates. Revenues for the quarter ended Dec. 31 came in at $608.3 million, down 2% year-over-year. However, analysts expected only $597.46 million in revenue.
Similarly, EPS fell 14.7% from the previous year to $0.29, but easily topped the consensus estimate of $0.18. Notably, over the past five quarters, the company's EPS has exceeded analysts' expectations on four occasions.
As a former REIT, GEO Group was once a favorite among yield-hunting dividend investors - before management had to kill the cash payout in order to deleverage the company's balance sheet. Now, there's speculation the dividend could soon return, and that sentiment would seem to be supported by interim CFO Shayn March's commentary on the Q4 earnings call.
“Approximately one-half of our debt is based on floating interest rates, and decreases in interest rates would bolster our annual free cash flow that could be used to further reduce our overall levels of debt,” said March, suggesting that GEO is positioned to benefit from the Fed's projected interest rate cuts.
The CFO continued, “We believe that our focus on reducing debt, de-levering the balance sheet, and freeing up key free cash flow for the potential return of capital will enhance value for our shareholders over time.”
GEO Group & ICE
Separately, GEO also announced recently that it has bagged a five-year contract from U.S. Immigration and Customs Enforcement (ICE). Through its wholly owned subsidiary Geo Transport, the company will provide air operations support services as a subcontractor to CSI Aviation, which has been selected by ICE as the prime contractor. Notably, the new five-year contract is expected to generate about $25 million annualized revenues for the company.
By virtue of being one of the leaders in the prison management space, GEO enjoys a unique position in the market. For instance, its BI subsidiary is the leader in the electronic monitoring space, and is the only company that has a contract with ICE for electronic monitoring. It also has an additional 9,000 unoccupied beds if ICE funding in general goes up.
To that end, indications that lawmakers have reached a deal on a massive border spending bill could be a significant boost for GEO. The legislation could significantly increase the number of participants in the Intensive Supervision Appearance Program (ISAP) electronic monitoring system - a business where GEO commands roughly 50% margins.
What Do Analysts Expect for GEO Group?
Despite GEO's impressive rally this year, the shares are still reasonably valued at current levels. The shares are priced at about 15 times forward earnings - a significant discount to its closest peer, CoreCivic (CXW), at 24.3x.
While Zoley thinks GEO stock is a bargain, analysts seem caught off guard by the stock's run higher. While the shares have a unanimous “Strong Buy” rating from the three analysts in coverage, GEO is trading nearly flat with its mean price target of $14.75. The Street-high price target of $15, reiterated earlier this month, is only a 2.5% premium from current prices.
