Why GEO Group shares reached 11% this morning
Actions of The GEO group (NYSE: GEO), owner and operator of publicly traded prisons, rose about 11% at the start of trading on Monday. That gain had been reduced to around 8% by 11:45 a.m. EDT, but today’s excitement is actually a noticeable change in direction. The company’s first quarter 2021 results update precipitated the positive price action.
Over the past year, the GEO Group’s share price has fallen by almost 50%. The quarterly dividend went from $ 0.48 per share to zero. This isn’t a big trend for a real estate investment trust (REIT) like the GEO group, and it highlights the very real headwinds the company faces today.
One of the most important, and most difficult to quantify, is that the current administration in Washington, DC, has taken a grim view of for-profit prison operators (ordering the US Department of Justice to stop using companies like The GEO Group). To be fair, the federal government is only part of the REIT’s business, but this decision could spill over into other levels of government.
That said, at this point the GEO Group is focused on managing its exposure to the coronavirus pandemic (a significant issue for group environments like prisons) and reducing debt. This latter objective helps explain the dividend reduction and is consistent with the Company’s current reassessment of its decision to operate as a REIT.
Interestingly, however, the GEO Group posted first quarter 2021 adjusted funds from trading of $ 0.60 per share. This would have been more than enough to cover the dividend before it was reduced and then eliminated. The figure also far exceeded Wall Street’s expectations of $ 0.48 per share and was up $ 0.55 per share in the same period of 2020. So despite the headwinds here, it wasn’t a big deal. bad quarter. And it should be noted that, if the GEO Group decides to remain a REIT, it may be required to pay a dividend at the end of the year in order to maintain tax-advantaged REIT status.
It’s easy to see why investors were happy with the results here today. However, that doesn’t change the very complex backdrop facing investors, including negative sentiment in Washington, the coronavirus pandemic, and the company considering exiting REIT status. Until there is more clarity on these issues, investors may want to watch from the side. And yet, after such a steep price drop over the past 12 months, more aggressive investors wouldn’t be wrong to ask if there is any interesting recovery potential here.
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