By M. Marin
READ THE FULL CXW RESEARCH REPORT
Operating momentum continues, reflecting new contracts, balance sheet measures, cost optimizations
CoreCivic (NYSE:CXW) reported 4Q25 results last week that beat our/consensus projections significantly. CXW was awarded contracts at multiple idle facilities in 2025 and is in discussions with ICE and other government partners for other contracts, including to reactivate additional idle facilities. New business has closed at a pace the company has not experienced in some time.
5-year business retention rate averages 97%
The company has had a high and stable retention rate, which we believe underscores the strength of its relationships with government partners, a strong track record of delivering services, and a more modern state of its facilities compared to alternative solutions, among other factors. Over the past 5-years, renewal rates on owned and controlled facilities are 97%. Management also believes renewal rates remain high, reflecting the limited supply of and older state of many government-owned correctional facilities, as noted, and the programs the company offers inmates and the cost-effectiveness of its services. We believe this high retention augers well for continued business momentum going forward, particularly given the needs of ICE and other government partners.
CXW still has five additional idle facilities containing over 7,000 beds that it can bring back online. The company’s strong pipeline and recent new business wins, or contract extensions, reflect CXW’s ability to provide flexible capacity to government customers, in our view. Government entities and ICE need to house the prison populations and detainees, and also face budgetary issues that likely constrain construction of new facilities in the near-term. We believe the facility reactivations and multiple new contracts position CXW for strong performance going forward. Reactivation activities at one facility – the Midwest Regional Reception Center – have been paused by a lawsuit. Once the other reactivated facilities reach stabilized occupancy, they are expected to generate roughly $320 million of annual revenue. Of these, California City and West Tennessee are expected to reach stabilized occupancy in early 2026, and CXW expects reactivated facilities to reach breakeven or positive operating income within 1Q26.
We remain optimistic about operating trends going forward. We expect further renewals, extensions, and new business agreements for CXW with ICE in the future. Outside of ICE, other recent management contracts include with Wyoming for up to 240 beds at its 2,672-bed Tallahatchie County Correctional Facility in Tutwiler, Mississippi, and with Hinds County, Mississippi, for up to 250 beds at this facility. Another is with Harris County, Texas, for up to 360 beds at the company’s Tallahatchie County Correctional Facility and a contract with the U.S. Marshals Service at the 4,128-bed Central Arizona Florence Correctional Complex.
Enhanced financial flexibility with amended credit agreement increasing liquidity
At the same time, CXW continues to strengthen its balance sheet and has substantial liquidity to support buybacks and growth measures and support operations regardless of shutdown-related payment delays (CXW’s detention populations and revenue were not impacted during the last government shutdown, and the company expects to receive full payment and interest payments accrued during the shutdown post shutdown). To enhance its financial flexibility to support the expanded share buyback authorization (see below) and potentially strategic investments, among other initiatives, CXW amended its credit agreement to expand the revolving credit facility to $575 million, effective December 1, 2025, from $275 million. As of January 2026, CXW had outstanding borrowings under the revolver of $165.0 million and additional borrowing capacity of $391.4 million following the amendment, including outstanding letters of credit of $18.6 million. CXW had $97.9 million of cash at the end of 2025 for liquidity of well over $450 million.
The company’s 2.8x, CXW’s TTM Debt leverage ratio at the end of 2025 is at the low end of its target range, and CXW generates strong cash flow. The company recently reiterated that it “is forecasting significant increases in revenues and cash flows going into 2026 and 2027”, and we are optimistic about CXW’s opportunity to continue generating stable cash flow, reflecting the company’s operating leverage, business momentum, and renewal rate on its facilities over the past five years, among other factors.
View increases to share repurchase authorization as positives
The company believes CXW shares are undervalued and aggressively repurchased shares in 2025, with share repurchases a capital allocation priority. The company repurchased 11.2 million shares in 2025 at an aggregate cost of $218.4 million, or an average of $19.50 per share. In 4Q25 alone, CXW bought 5.3 million shares at an aggregate $97.3 million and an average of $18.36 per share. Since the share repurchase program was authorized in May 2022, through year-end 2025, CXW had repurchased an aggregate 25.7 million shares at a cost of $399.5 million, or average of $15.52 per share.
The company also implemented two increases to the existing share repurchase plan in 2025, which we view as a positive and believe it reflects the company’s positive outlook on its business and goal to deliver shareholder value. As of year-end 2025, CXW had $300.5 million of repurchase authorization available under the share repurchase program, with the added authorization. CXW has no major debt maturities coming due in 2026, and it would not surprise us to see CXW prepare to repay portions of the 2027-28 maturities in advance, as it has done with prior maturities in the past.
Believe Alternative Solutions Could Create Opportunities
The company has a long history of providing capacity and related services to ICE, the federal government’s highest-funded law enforcement agency, according to the New York Times, and to other government partners. CXW still has five additional idle facilities containing over 7,000 beds that it can bring back online. ICE demand for beds is expected to exceed this level over the next few years, and one potential alternative solution under consideration is to convert idled warehouses to add capacity.
For example, ICE apparently has purchased a warehouse in Chester, New York, with plans to convert it to a detention center and is considering the purchase of several additional warehouses. This type of solution does not match CXW’s offerings, in our view, from multiple perspectives, including security and ability to include features such as medical and family facilities, among others. Moreover, it also seems that warehouses could generate opposition from local governments and populations. Nevertheless, in the event that ICE uses this and/or other alternative solutions to close the gap between its demand for capacity and what is currently available from CXW and other existing sources, we believe it could present opportunities for CXW to manage and/or offer ancillary services. Managing government-owned facilities is a service CXW has offered and handled consistently, and which we believe underscores CXW’s longstanding role in supplying capacity and services to ICE, its largest government partner.
We believe concerns about ICE funding and the warehouse and other solutions are likely primary factors that have overhung the shares. ICE was funded by H.R. 1, the One Big Beautiful Bill Act (OBBBA), and is, in fact, the federal government’s highest-funded law enforcement agency, according to the New York Times. (The legislative spending bill that has been debated recently originally included appropriations for the Department of Homeland Security) – is a primary overhang, and we continue to view the company’s recent momentum, growth, and balance sheet measures as catalysts for ongoing multiple expansion over time.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives payments totaling a maximum fee of up to $50,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.
