Private prison operators GEO Group (NYSE:GEO) and CoreCivic (NYSE:CXW) look poised to be one of the biggest beneficiaries of Donald Trump’s presidency.

Beyond the lack of animus directed at the private prison industry that began during President Barack Obama’s presidency, a promised crackdown on illegal immigration and securing the U.S.’s borders sets up GEO Group and CoreCivic to profit handsomely from the effort. 

The government will need significant numbers of holding facilities to house those picked up for deportation, and the prison operators already serve in that capacity.

The markets certainly think GEO Group and CoreCivic will be big winners in a Trump administration as GEO stock rocketed 42% higher the day after the election while shares of CXW soared 29%. 

With both prison operators already seeing their stocks significantly narrow the amount of growth needed to double their share, investors might start thinking about whether GEO and CXW could triple in value or more during the next few years. But let’s not put the cart before the horse.

24/7 Wall St. Insights:

• Donald Trump campaigned on a promise for strong border security and mass deportations of illegal immigrants.
• Both policies would require use of private prison facilities such as those operated by GEO Group (GEO) and CoreCivic (CXW), which has caused the stocks of both to soar following Trump’s election.
• Mass deportations, in particular, might be logistically difficult, making sustained gains in the private prison operators’ stocks difficult to hold.
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Deja vu all over again

We’ve seen this scenario play out before with GEO Group and CoreCivic in 2016 when Trump was first elected on a strong border control policy. Although shares of the private prison operators shot higher in early 2017, more than doubling in value over the first three months of the new year, they subsequently went on a multiyear decline afterward.

GEO stock ended up losing more than 40% of its value from where it traded the day before Trump was elected while CXW stock lost half its value.

The response to Trump’s second election seems to initially be following the same pattern. Although Republicans controlled both houses of congress just as they will when Trump is inaugurated in January, there may be a few conditions this time that will make the situation different.

Plugging the holes in immigration policy

First, Trump has pledged not only to have stronger border security to stem the flow of illegal immigrants into the country, but he has promised mass deportations of the millions of people who flooded the border during the last four years.

According to the House Committee on Oversight and Accountability, more than 8 million illegal aliens entered the U.S. since 2021, with 6.7 million of them crossing the southern border. An estimated 1.7 million illegals evaded the Border Patrol and now live somewhere in the interior of the U.S.

However, the Department of Homeland Security also allowed hundreds of thousands of additional immigrants to use the Customs and Border Protection’s CBP One app to request commercial air travel to fly directly into the U.S. and avoid Border Patrol contact altogether. They were flown to airports primarily in Florida, Texas, New York, and California where they were released into the country.

Trump has floated the idea of using the Alien Enemies Act of 1798 to deport millions of illegal immigrants. With both the House of Representatives and the Senate controlled by Republicans, there would likely be little obstruction to obtaining the funding and manpower necessary to carry out the deportations.

Still, it would be logistically difficult to do so and there would undoubtedly be legal challenges to the program. It could be mired in the courts for years.

Little lasting impact

In short, although GEO Group and CoreCivic could conceivably be beneficiaries of such a program, it might not be as extensive as believed. Particularly because shares of both companies have already gained so much, a doubling in value is quite possible. Going much beyond that seems improbable.

Whether the gains will stick this time, or as in 2017 prove fleeting, remains to be seen. I tend to think the latter will be the case and would not invest based on lasting share price appreciation for either private prison operator.

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