Will Harris County soon privatize jail, let Corrections Corporation of America manage it?

Grits had noticed last month that the two largest private prison companies - the Geo Group and Corrections Corporation of America (CXW) - had been said to have "bearish technicals" by analysts at Market Investment Watch, which jibed with Grits' past assessments that both firms (but especially Geo) were excessively laden with debt. So I was surprised to see that a Zacks.com analyst had recently rated Corrections Corporation of America a "buy" stock. Since Grits mentioned the recent negative assessment, I decided I should report this positive one, as well.

Quite remarkably, an accompanying article from Zacks said part of the company's optimism stemmed from the fact that they're currently "awaiting the decision" on a  "managed-only opportunity for about 9,000 beds in [the] Harris County, Texas" jail. I knew Harris County had agreed to "study" privatization, but "awaiting the decision"? Does Corrections Corporation of America really believe they may soon manage the Harris County Jail under contract? Is that delusional, or do they know something the rest of us don't?

Perhaps they do. According to a knowledgeable source in Harris County, the Office of Purchasing and Management Services told county commissioners they couldn't assess potential savings without doing an actual request for proposals (RFP), so they did one. Bids are sealed, said my source, and nobody is supposed to know who submitted one. But clearly from the Zacks report, Corrections Corporation of America put in a bid and is telling investment analysts the contract might boost their bottom line in the near term. That seems a tad presumptuous.

Grits still thinks the two largest private-prison firms are risky investment bets for two reasons: Both are too overloaded with debt, and I think (perhaps wishfully) we may be on the cusp of seeing the "incarceration bubble" burst. That's particularly true in the industry's main growth area - immigration detention - so I wouldn't endorse a long-term favorable assessment for these stocks.

Certainly, of the two, CXW's situation appears far preferable to Geo's, which really is operating on an extremely over-leveraged basis (i.e., they issued way too much debt to gobble up competitors instead of winning new contracts through competitive bidding). If Geo didn't look like such a dog, I doubt CXW would look nearly as good to Zack's analysts except by comparison. But I question their long-term growth potential when crime rates are declining, states are de-incarcerating, both companies have spotty health and safety records, and folks like Newt Gingrich and Rick Perry are out on the campaign trail touting comprehensive immigration reform.

Even more specifically, I don't think Harris County is likely to privatize its jail anytime soon, to the extent that was cause for extra optimism by analysts. When it was discussed last, the votes didn't seem to be there. Plus any savings would come from cutting guard pay and benefits, and that won't happen without some sort of political rebellion/retaliation from the folks who currently staff the facility. I know Grits won't be the only one caught by surprise if Santa brings CXW a new contract anytime soon to run the jail in Harris County.