By Herbert Lash and Al Yoon
NEW YORK, Oct 20 (Reuters) - Activist investor Bill Ackman said prison operator Corrections Corp of America has become one of the best real estate companies in the world, and its stock price could double as the firm takes market share.
Private prison companies are becoming more popular because they can build jails more cheaply than state and federal governments, Ackman said at the Value Investing Congress in New York. Private prisons in 2007 took half the new growth in the industry, he noted.
'This is a business that has very significant growth and could do well in any environment...as long as people commit crimes and as long as we punish them,' Ackman said.
His Pershing Square Capital Management hedge fund has built a 9.5 percent stake, paying more than the $24.50 a share it traded around on Monday. He said the stock should trade between $40 and $54 per share.
The stock jumped 5 percent to $25.67 on Tuesday.
Corrections, the biggest publicly traded U.S. prison operator, is ready to take thousands of prisoners from budget-strained states, its chief executive Damon Hininger told Reuters in August. The company, however, is not yet investing in additional capacity, he said.
The company runs more than 64 facilities in the United States and houses about 77,000 inmates. It has about half the market share of privately-managed prison beds in the United States. The typical open capacity is about 4,000 to 6,000 beds, and Hininger said the company tries to always have spare capacity ready.
Kevin Campbell, an analyst with Avondale Partners, said some investors look at Corrections as a real estate opportunity, so Ackman was not unique in that realm.
Still, Campbell said he would like to know how Ackman arrived at his target valuation.
'I have a hard time seeing shares getting up to that level, it would imply some pretty rich multiples,' Campbell said, adding that Ackman, a well-known activist investor, might have ideas to enhance shareholder value.
Ackman said he is bullish on Corrections because the government as tenant is unlikely to default. He saw incredible demand and limited supply in a business that has only two competitors in the United States.
There is 'extraordinary return on capital,' with Corrections, he said. 'Part of that is limited competition ... this is not the typical thing for a real estate developer to get excited about.'
He likened the prisons business to hotels, except that the occupants are much longer term.
'There are more prisoners, we need to build some beds for them.' he said. 'I've never seen supply-demand statistics as positive as this.'
Private prisons operators will grow market share in coming years, Corrections CEO Hininger said in August.
The company's stock has gained nearly 60 percent since the beginning of 2009 and set a new 12-month high of $25.6 on the New York Stock Exchange on Tuesday.
(Editing by Andrew Hay)
(Additional reporting by Aarthi Sivaraman in Seattle) Keywords: ACKMAN INVESTMENT/CORRECTIONS (albert.yoon@thomsonreuters.com; +1 646-223-6347; Reuters Messaging: albert.yoon.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, Oct 20 (Reuters) - Activist investor Bill Ackman said prison operator Corrections Corp of America has become one of the best real estate companies in the world, and its stock price could double as the firm takes market share.
Private prison companies are becoming more popular because they can build jails more cheaply than state and federal governments, Ackman said at the Value Investing Congress in New York. Private prisons in 2007 took half the new growth in the industry, he noted.
'This is a business that has very significant growth and could do well in any environment...as long as people commit crimes and as long as we punish them,' Ackman said.
His Pershing Square Capital Management hedge fund has built a 9.5 percent stake, paying more than the $24.50 a share it traded around on Monday. He said the stock should trade between $40 and $54 per share.
The stock jumped 5 percent to $25.67 on Tuesday.
Corrections, the biggest publicly traded U.S. prison operator, is ready to take thousands of prisoners from budget-strained states, its chief executive Damon Hininger told Reuters in August. The company, however, is not yet investing in additional capacity, he said.
The company runs more than 64 facilities in the United States and houses about 77,000 inmates. It has about half the market share of privately-managed prison beds in the United States. The typical open capacity is about 4,000 to 6,000 beds, and Hininger said the company tries to always have spare capacity ready.
Kevin Campbell, an analyst with Avondale Partners, said some investors look at Corrections as a real estate opportunity, so Ackman was not unique in that realm.
Still, Campbell said he would like to know how Ackman arrived at his target valuation.
'I have a hard time seeing shares getting up to that level, it would imply some pretty rich multiples,' Campbell said, adding that Ackman, a well-known activist investor, might have ideas to enhance shareholder value.
Ackman said he is bullish on Corrections because the government as tenant is unlikely to default. He saw incredible demand and limited supply in a business that has only two competitors in the United States.
There is 'extraordinary return on capital,' with Corrections, he said. 'Part of that is limited competition ... this is not the typical thing for a real estate developer to get excited about.'
He likened the prisons business to hotels, except that the occupants are much longer term.
'There are more prisoners, we need to build some beds for them.' he said. 'I've never seen supply-demand statistics as positive as this.'
Private prisons operators will grow market share in coming years, Corrections CEO Hininger said in August.
The company's stock has gained nearly 60 percent since the beginning of 2009 and set a new 12-month high of $25.6 on the New York Stock Exchange on Tuesday.
(Editing by Andrew Hay)
(Additional reporting by Aarthi Sivaraman in Seattle) Keywords: ACKMAN INVESTMENT/CORRECTIONS (albert.yoon@thomsonreuters.com; +1 646-223-6347; Reuters Messaging: albert.yoon.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.