Despite Skyrocketing Shares, the Geo Group (NYSE:GEO) is Still a Value Buy – TipRanks Financial Blog
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The Geo Group (NYSE:GEO) is one company catching investors’ attention lately. Its strategic position to profit from the expansion of the U.S. Immigration and Customs Enforcement (ICE) beds and the rising use of electronic monitoring, driven by the escalating migration challenges in numerous U.S. cities, puts it at the forefront of that market. Investors of all stripes have been optimistic about the company’s prospects, helping to drive the shares up nearly 74% in the past year. Yet, the stock may still be a value buy at current levels.
What Does GEO Group Do?
The GEO Group is a leading provider in the correctional services industry. It provides secure facility management, community reentry programs, and correctional health care. The company oversees approximately 100 facilities, with a total capacity of around 81,000 beds, and employs up to 18,000 people.
In recent developments, GEO Group announced that its subsidiary, GEO Transport, Inc., has been awarded a five-year contract to support air operations for the U.S. Immigration and Customs Enforcement.
Crucially, this contract signals a continuation of services that GTI has provided as a subcontractor, reinforcing the company’s ongoing positive involvement with governmental bodies. Considering the potential option periods in the contract, this partnership signifies extended business continuity and strengthens GEO’s position as a diversified government services provider.
Robust Financials
GEO recently reported Q4 performance, with the adjusted EPS of $0.29 exceeding the consensus expectation of $0.17. The company’s Q4 revenue also surpassed expectations, coming in at $608.3 million instead of the predicted $597.46 million. In addition, the fourth quarter of 2023 saw an adjusted EBITDA of around $129 million, reflecting a more than 8% sequential increase from the preceding quarter.
The Executive Chairman and Director, George Zoley, pronounced 2023 “the second-best year in our company’s 40-year history.” The company expects to keep the upward trend going in 2024. Geo Group predicts a net income between $110 million and $125 million, with annual revenue amounting to approximately $2.4 billion.
Further, GEO’s strategic reduction of debt, coupled with a positive outlook for the year ahead, has the company exploring options to return capital to shareholders.
Where GEO Stock Stands Now
GEO stock has been on an impressive upward trend in the past year. With a recent price of $13.15, GEO is trading toward the top of its 52-week range of $6.94-$13.21. The shares have shown ongoing positive price momentum and trade above the 20-day (12.06) and 50-day (11.57) moving averages.
Despite the recent price climb, the stock trades in relatively undervalued territory. Its price-to-earnings ratio of 17.30x is below the Industrials sector average of 18.05x and the Security & Protection Services industry average of 17.87x.
Insiders have recently demonstrated confidence in the company’s future prospects through substantial stock acquisitions. For example, George Zoley purchased 50,000 shares of GEO on March 14, 2024, at an average price of $12.48. Investors frequently interpret strong insider buying as a sign of management’s belief in the company’s upcoming growth and stability.
What is the Price Target for GEO in 2024?
Analysts covering the stock have been bullish. For instance, Northland Securities analyst Greg Gibas has identified GEO Group as a “2024 Top Pick” based on its position to leverage increased demand for its diversified government services from ICE, USMS (United States Marshals Service), state correctional agencies, and reentry services.
GEO is currently listed as a Strong Buy based on three unanimous Buys. The average GEO price target of $14.67 represents an upside potential of 11.56% from current levels.
Final Thoughts on GEO
GEO Group is strategically well-placed to capitalize on strong market trends, fueled by increased funding for ICE beds, the growing adoption of electronic monitoring, and responses to the escalating migration issues faced by many U.S. cities.
Analysts are bullish on the company’s prospects in the near term. The stock represents a relative value at current levels, though that window may close shortly if the share price continues to climb.
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