The GEO Group, Inc. (GEO) is a diversified government service provider specializing in design, financing, development, and support services for secure facilities, processing centers, and community reentry centers in the United States, Australia, South Africa, and the United Kingdom.

GEO’s diversified services include enhanced in-custody rehabilitation and post-release support through its GEO Continuum of Care, secure transportation, electronic monitoring, community-based programs, and correctional health and mental health care.

In the last reported quarter, GEO’s revenue and net income increased 4% and 28% year-over-year, respectively. The company has guided for a better end to fiscal 2022.

It has revised its revenue estimates from $2.20 billion to $2.35 billion. Its adjusted EPS is now expected to come in the range of $1.28 to $1.34, up from $1.17 to $1.27 guided earlier. Also, its AFFO per share is expected to come between $2.40 to $2.46 now, up from the range of $2.30 to $2.40 guided previously.

Moreover, the company expects its adjusted EBITDA to come between $515 million and $530 million, up from the earlier prediction of $453 million to $471 million.

GEO is also working towards deleveraging. GEO’s Executive Chairman George C. Zoley said, “Our diversified business units have delivered robust results over the last two years, which has allowed us to reduce our net recourse debt by approximately $375 million since the beginning of 2020, significantly deleveraging our balance sheet. To complement our efforts to reduce net recourse debt, we are pleased to have recently announced several proposed transactions to comprehensively address the substantial majority of our outstanding debt maturities in 2023, 2024, and 2026.”

The stock has declined 8.5% year-to-date but gained 3.2% over the past year to close the last trading session at $7.09.

Here’s what could influence the performance of GEO in the upcoming months:

Robust Financials

GEO’s revenue increased 4% year-over-year to $588.17 million for the second quarter ended June 30, 2022. The company’s operating income increased 31.2% year-over-year to $95.07 million. Also, its net income increased 28% year-over-year to $53.72 million. In addition, its adjusted EBITDA increased 11.8% year-over-year to $132.34 million.

Mixed Analyst Estimates

GEO’s FFOs for fiscal 2022 and 2023 are expected to decline 29.9% and 13.9% year-over-year to $1.36 and $1.17, respectively. Its revenue for fiscal 2022 and 2023 is expected to increase 4.1% and 4.3% year-over-year to $2.35 billion and $2.45 billion, respectively.

Mixed Profitability

In terms of trailing-12-month net income margin, GEO’s 2.92% is 56.5% lower than the 6.71% industry average. Likewise, its 28.92% trailing-12-month gross profit margin is 2.3% lower than the industry average of 29.59%.

However, its 9.10% trailing-12-month levered FCF margin is 152.6% higher than the 3.60% industry average. Also, its 20.17% trailing-12-month EBITDA margin is 55.3% higher than the industry average of 12.98%.

Discounted Valuation

In terms of forward non-GAAP P/E, GEO’s 5.79x is 64.2% lower than the 16.21x industry average. Its trailing-12-month EV/EBITDA of 7.28x is 40.2% lower than the 12.17x industry average. Also, the stock’s 0.39x trailing-12-month P/S is 70.7% lower than the 1.35x industry average.

POWR Ratings Show Promise

GEO has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. GEO has a B grade for Value, in sync with discounted valuation.

The stock is trading above its 50-day and 200-day moving average of $6.68 and $7.03, justifying its B grade for Momentum. It has a C grade for Quality, consistent with its mixed profitability.

GEO is ranked #6 out of 49 stocks in the REITs – Diversified industry. Click here to access GEO’s Growth, Stability, and Sentiment ratings.

Bottom Line

GEO is currently trading above its 50-day and 200-day moving average, indicating an uptrend. The company has raised its revenue, earnings, AFFO, and adjusted EBITDA expectations for fiscal 2022. Also, its recent agreement to refinance its upcoming debt will allow the company to lengthen its maturity schedule and provide ample time to deleverage.

Given its robust financials, discounted valuation, and improved guidance for fiscal 2022, it could be wise to buy and hold the stock.

How Does The GEO Group, Inc. (GEO) Stack Up Against its Peers?

GEO has an overall POWR Rating of B, equating to a Buy rating. You might want to consider investing in the following REITs – Diversified stocks with an A (Strong Buy) or B (Buy) rating: Alliance Global Group, Inc. (ALGGY), Land Securities Group plc (LDSCY), and Ladder Capital Corp (LADR).

GEO shares were unchanged in premarket trading Thursday. Year-to-date, GEO has declined -8.52%, versus a -12.09% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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