Corrections Corporation of America (CXW) Raised to Buy at SunTrust as Sentiment Seen as 'Overly Negative'
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(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."
Shares of Corrections Corporation of America closed at $13.40 yesterday.
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