Corrections Corporation of America (CXW) Raised to Buy at SunTrust as Sentiment Seen as 'Overly Negative'

(Updated - October 12, 2016 10:01 AM EDT)

SunTrust Robinson Humphrey upgraded Corrections Corporation of America (NYSE: CXW) from Neutral to Buy with a price target of $20. Despite political risk, analyst Tobey Sommer, thinks sentiment is overly negative.

"We believe that sentiment is overly negative and that the risk-reward is favorable despite acknowledging large political risk," said Sommer. "Our new conservative estimates assume the ICE family processing contract is cut in half to 10% of total company EBITDA from 20% currently, BOP business is phased out over multiple years (despite expecting near-term contract renewals), and CA out-of-state business is canceled in 2017. Dividends could equal $3.85 over 3 yrs or 29% of the current share price (at 80% payout of AFFO)."

The analyst added, "We are elevating CXW shares to Buy on an expectation for: (1) a continued double-digit dividend payout; and (2) positive news flow to be mixed into the heretofore uniformly negative news of the last two months. We lower our 2017 AFFO estimate to $1.70 from $1.89 and established estimates of $1.61 in 2018 and $1.50 in 2019. We now assume that out-of-state business with CA goes to zero resulting from Prop 57 and BOP business approaches zero by 2019."

For an analyst ratings summary and ratings history on Corrections Corporation of America click here. For more ratings news on Corrections Corporation of America click here.

Shares of Corrections Corporation of America closed at $13.40 yesterday.

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