CoreCivic has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 15.8% to $21.17 per share while the index has gained 11%.
Is now the time to buy CoreCivic, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is CoreCivic Not Exciting?
We’re sitting this one out for now. Here are three reasons why there are better opportunities than CXW, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, CoreCivic grew its sales at a mediocre 4.6% compounded annual growth rate. This fell short of our benchmark for the business services sector.
2. Shrinking Adjusted Operating Margin
Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.
Analyzing the trend in its profitability, CoreCivic’s adjusted operating margin decreased by 3.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 10.3%.
3. Free Cash Flow Margin Dropping
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, CoreCivic’s margin dropped by 6.6 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. CoreCivic’s free cash flow margin for the trailing 12 months was breakeven.
Final Judgment
CoreCivic isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at $21.17 per share (or a forward price-to-sales ratio of 0.8×). The market typically values companies like CoreCivic based on their anticipated profits for the next 12 months, but there aren’t enough published estimates to arrive at a reliable number. You should avoid this stock for now - better opportunities lie elsewhere. We’d suggest looking at a dominant aerospace business that has perfected its M&A strategy.
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