Bearish stock to watch: Corecivic Inc (NYSE: CXW)

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Corecivic Inc (NYSE: CXW) stock plunged 16.69% on June 18th, 2020 and continued its bearish momentum on 19th June, 2020 (as of 10:41 am GMT-4; Source: Google finance) after the company decided to suspend the Company’s quarterly dividend while it is assessing how to make best use of its substantial free cash flow to increase its service excellence, build shareholder value, and offer and implement unique solutions for the government partners and the communities. The company is evaluating its corporate structure and capital allocation alternatives given the unprecedented challenges posed by the COVID-19 pandemic. As a real estate investment trust (REIT), CXW is required to pay out most of the Company’s earnings in dividends, which requires it to rely on the capital markets to fund future growth. At the current market prices both debt and equity securities, capital has become increasingly expensive. The alternative corporate structures would help the company to be more flexible to allocate the Company’s substantial free cash flow to the highest returning opportunities, that includes options like debt repayment, prudent return of capital to shareholders, or funding attractive growth opportunities. The growth opportunities include increasing the investment in programs and services that will expand on the leadership role the company play in addressing the most pressing issues facing America’s criminal justice system. Furthermore the company believes alternative structures could help the company to expand the opportunities in meeting other partner needs that cannot be undertaken in the current structure. For these things, the company has engaged Moelis & Company as financial advisor and Bass, Berry & Sims PLC and Latham & Watkins, LLP as legal advisors.  The Company projects to finalize this evaluation in the third quarter of 2020.

On the other hand, in April 2020, the Company has delivered the revenue of $158.1 million in revenue, which represents a 4.2% decrease compared with March 2020, and net income of $10.2 million. About half of the decline in revenue was driven by April having one less day, while the remainder of the fall was mainly due to a reduction in occupancy from multiple government partners related to COVID-19.  Normalized Funds from Operations (Normalized FFO) for the month of April was $22.4 million, which is a 5.5% increase compared with March 2020.

In May 2020, the Company posted the revenue of $159.6 million, which is a 0.9% rise compared with April 2020, and net income of $15.3 million.  Normalized FFO for the month of May was $25.0 million, which is an 11.9% increase compared with April 2020.

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