Canaccord Genuity Remains Sidelined Following Corrections Corp's (CXW) Announced Restructuring
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Canaccord Genuity reiterated a Hold rating and $21.00 price target on Corrections Corporation of America (NYSE: CXW) following the company's announced restructuring of the company's corporate operations and implementation of a cost reduction plan. CCA expects that 50-55 FTEs will be eliminated, or 12% of the corporate workforce at headquarters. Management expects to see a $4M charge in 3Q16 as a result of this change. Additionally, CEO Damon Hininger has volunteered to forfeit restricted stock units awarded to him on 2/19/16, and also requested CCA's compensation committee to not award him any equity-based compensation in 2017.
Analyst Ryan Meliker commented, "This evening, CXW announced a restructuring of the company's corporate operations and implementation of a cost reduction plan. This plan included cutting 12% of the corporate workforce at headquarters, as well as the CEO volunteering to forfeit restricted stock units granted earlier in 2016. We believe this is a step in the right direction for CXW, as the stock has traded off massively on the DOJ memo, as well as the DHS news. Yet, we continue to critically monitor the company's progress, as there are a number of catalysts on the horizon that may pressure the company further. We await results from the renegotiation of CXW's South Texas Family Residential facility (~25% EBITDA exposure to this single facility), which could result in half of that EBITDA being cut. Furthermore, we continue to monitor sentencing reform and contract headlines, as BOP renewals are starting to come up for renewal, the ongoing ICE review progresses, and California's prop 57 nears its November vote. We believe cash flows, dividends, and debt covenants could be pressured further should any of these upcoming decision points not go in CXW's favor. Some investors might read into this news as an advance warning that these risks are more likely to materialize. While that is possible, we believe it may be putting the cart before the horse. As such, we reiterate our thesis, but believe CXW is at least taking the necessary steps to build a cushion in cash flows and dividend coverage."
Shares of Corrections Corporation of America closed at $14.78 yesterday.
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