U.S. prisons lose Wall Street sell-side coverage

Via Reuters | Sinéad Carew and Imani Moise

 Sell-side analysts have stopped covering U.S. private prison operators as Wall Street has distanced itself from publicly traded GEO Group Inc (GEO.N) and CoreCivic Inc (CXW.N).FILE PHOTO: ICE detainees make phone calls at the Adelanto immigration detention center, which is run by the Geo Group Inc (GEO.N), in Adelanto, California, U.S., April 13, 2017. REUTERS/Lucy Nicholson

This retreat follows a parade of major lenders announcing they would no longer offer financing to private detention center operators amid a public uproar over immigrant detention policies of U.S. President Donald Trump’s administration.

Wells Fargo and SunTrust Robinson Humphrey dropped analyst coverage of the prison companies earlier this month putting the pair in a very small group of big companies with no coverage from Wall Street analysts that sell research to investors.

During a quarterly earnings conference call on Tuesday, GEO Chief Financial Officer Brian Evans said the company was working with a number of smaller equity analyst shops and in the early stage of developing relationships after a portfolio manager asked about efforts to get sell-side coverage.

CoreCivic did not respond to requests for comment.

GEO and CoreCivic are among the roughly 3% of companies without analyst coverage among New York Stock Exchange listed companies with a market capitalizations between $1 billion and $3 billion, according to data from Refinitiv.

Sell-side analysts typically issue reports setting stock-price targets and recommending whether investors should buy, sell or hold the stocks based on business analysis.

The lack of reports and recommendations is a negative for both investors and corporations, according to Haran Segram, a clinical professor of finance who teaches classes on valuing companies at NYU Stern Business School.

“It’s bad news from the investor’s perspective because no price discovery is happening. Its bad news from the company’s perspective because if they’re trying to do funding investors will be looking for independent research. If they don’t find it they’d be reluctant to fund the company,” said Segram.

Suntrust Robinson Humphrey dropped coverage on July 9 a day after parent company SunTrust Banks Inc (STI.N) said it would stop financing prison operators and immigration holding facilities.

A SunTrust spokesman said the coverage change was a “reallocation of resources” and not connected to the decision to forego financing work.

Wells Fargo dropped coverage of the stock on July 15 citing “diminished institutional interest.” In January Wells Fargo said it was reducing its relationship with the prison industry as part of its “environmental and social risk management process.”

US Bancorp (USB.N) said this week it has been reducing its exposure to the sector due to risk characteristics and that it plans to exit the relationships once its contractual obligations expire.

Barclays (BARC.L), which said earlier this week that it was cutting ties with the industry, was part of a group of several banks that helped finance a revolving credit line for GEO that is set to expire in 2024.

“We intend to allow this facility to expire in due course and currently do not plan to enter any new financing arrangements with these companies,” a company spokeswoman said on Wednesday.

Other banks that have said they would forego providing financing to private prisons include JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N), France’s BNP Paribas SA (BNPP.PA) and Fifth Third (FITB.O).

In April 2018 Deutsche Bank, which does not have a relationship with either company, ended coverage of the prison stocks. A spokesperson declined to comment.

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