CoreCivic Inc (CXW, Financial) has recently experienced a daily gain of 4.93% and a notable 3-month gain of 39.16%. With an Earnings Per Share (EPS) of $0.57, investors are considering the stock's valuation status. The critical question arises: is CoreCivic significantly overvalued? This article delves into a comprehensive valuation analysis to provide readers with a clearer understanding of CoreCivic's market position.
Company Introduction
CoreCivic Inc is a leading owner and operator of private prisons and detention centers in the United States. With its operations spanning across three segments: Safety, Community, and Properties, CoreCivic has established a significant presence in the industry. The Safety segment is particularly noteworthy, operating approximately 50 facilities. The company's revenue is primarily derived from federal, state, and local government agencies through commercial contracts ranging from 3-5 years, with multiple renewal options.
When comparing CoreCivic's current stock price of $14.3 to the estimated GF Value of $10.27, a clear discrepancy emerges, suggesting a potential overvaluation. This initial assessment sets the stage for a deeper investigation into the company's intrinsic value.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. This valuation model suggests that CoreCivic (CXW, Financial) is significantly overvalued, with a stock price that exceeds the GF Value Line. Consequently, the long-term return of CoreCivic's stock is anticipated to be lower than its future business growth, indicating caution for potential investors.
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Financial Strength
Investing in companies with robust financial strength is crucial to mitigate the risk of capital loss. CoreCivic's financial strength, with a cash-to-debt ratio of 0.1, is less than ideal when compared to its industry peers. This ratio positions CoreCivic in the lower echelon of the Business Services industry, indicating a need for careful consideration before investment.
Profitability and Growth
Consistent profitability is a desirable trait for companies, as it often correlates with lower investment risk and higher profit margins. CoreCivic has maintained profitability for 9 out of the past 10 years, with a solid operating margin that surpasses more than half of its industry competitors. However, the company's growth trajectory presents concerns, with revenue growth and EBITDA growth lagging behind a significant portion of the Business Services sector.
ROIC vs WACC
The comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) is a critical indicator of a company's profitability. CoreCivic's ROIC of 4.34 falls short of its WACC of 6.63, suggesting that the company may not be generating sufficient cash flow relative to the capital invested.
Conclusion
CoreCivic (CXW, Financial) appears to be significantly overvalued based on current market prices and GF Value analysis. While the company exhibits fair financial condition and profitability, its growth prospects and value creation are subdued. Investors are encouraged to review CoreCivic's 30-Year Financials for a more detailed understanding of its financial health.
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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.
