CoreCivic Inc (CXW, Financial) has recently shown a notable daily gain of 4.93%, with a significant 3-month gain of 39.06%. Despite these gains and an Earnings Per Share (EPS) of $0.57, there is a pressing question that concerns investors: Is the stock significantly overvalued? To answer this, we delve into a comprehensive valuation analysis that will shed light on CoreCivic's intrinsic value compared to its current market price.
Company Introduction
CoreCivic Inc operates a diversified business with a focus on the ownership and management of private prisons and detention centers in the United States. Its operations are segmented into Safety, Community, and Properties, with the majority of its revenue stemming from the Safety segment. CoreCivic has a history of engaging in long-term commercial contracts, ranging from 3-5 years with options for renewal. Despite the company's extensive operations and partnerships with government agencies, a stark contrast is observed when the current stock price of $14.25 is set against the GF Value of $10.27, indicating a potential overvaluation. This discrepancy sets the stage for a deeper exploration into CoreCivic's true market value.
Understanding the GF Value
The GF Value is a unique measure that estimates the intrinsic value of a stock by taking into account historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance projections. If CoreCivic's stock price is significantly above the GF Value Line, it may suggest that the stock is overvalued, which could lead to poor future returns. Conversely, a price below the GF Value Line could indicate undervaluation and potentially higher future returns. Currently, CoreCivic (CXW, Financial) appears significantly overvalued as per our proprietary valuation method.
Given the significant overvaluation, investors may expect a lower long-term return on CoreCivic stock compared to the company's future business growth. This highlights the importance of considering intrinsic value as a core aspect of investment decision-making.
Financial Strength and Stability
Investors seeking to avoid permanent capital loss must scrutinize a company's financial strength. CoreCivic's cash-to-debt ratio of 0.1 ranks lower than 84.91% of its peers in the Business Services industry, suggesting a weaker financial position. The company's overall financial strength is rated as fair, with a score of 5 out of 10.
Profitability and Growth Prospects
Investing in profitable companies, especially those with a consistent track record, typically carries less risk. CoreCivic has maintained profitability for 9 out of the past 10 years, demonstrating a solid operating margin that ranks well within its industry. With a profitability rank of 7 out of 10, CoreCivic's financial performance is considered fair. However, its growth metrics tell a different story. The company's 3-year average annual revenue growth rate is in the lower percentile of the industry, indicating potential challenges ahead.
ROIC vs. WACC: A Measure of Value Creation
Comparing the Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) can provide insight into a company's value creation. CoreCivic's ROIC over the past 12 months is 4.34, which is lower than its WACC of 6.57, suggesting that the company may not be generating sufficient returns on its investments.
Conclusion
In conclusion, CoreCivic (CXW, Financial) exhibits signs of significant overvaluation when considering its GF Value. While the company's financial condition and profitability are fair, its growth lags behind many competitors in the Business Services industry. For those interested in a more detailed financial analysis, CoreCivic's 30-Year Financials provide an extensive overview.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
