Intrinsic value of Geo Group Inc (The) - GEO

Previous Close

$21.99

  Intrinsic Value

$12.14

stock screener

  Rating & Target

sell

-45%

Previous close

$21.99

 
Intrinsic value

$12.14

 
Up/down potential

-45%

 
Rating

sell

Our model is not good at valuating stocks of financial companies, such as GEO.

We calculate the intrinsic value of GEO stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 2.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.15
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
Revenue, $m
  2,457
  2,589
  2,726
  2,871
  3,022
  3,180
  3,346
  3,519
  3,701
  3,892
  4,092
  4,302
  4,522
  4,753
  4,995
  5,248
  5,515
  5,794
  6,087
  6,395
  6,718
  7,057
  7,412
  7,786
  8,177
  8,589
  9,020
  9,473
  9,949
  10,448
Variable operating expenses, $m
  1,869
  1,964
  2,063
  2,167
  2,276
  2,390
  2,509
  2,634
  2,765
  2,902
  2,945
  3,096
  3,255
  3,421
  3,595
  3,777
  3,969
  4,170
  4,381
  4,603
  4,835
  5,079
  5,335
  5,603
  5,885
  6,181
  6,492
  6,818
  7,160
  7,520
Fixed operating expenses, $m
  299
  306
  313
  320
  327
  334
  341
  349
  356
  364
  372
  380
  389
  397
  406
  415
  424
  433
  443
  453
  463
  473
  483
  494
  505
  516
  527
  539
  551
  563
Total operating expenses, $m
  2,168
  2,270
  2,376
  2,487
  2,603
  2,724
  2,850
  2,983
  3,121
  3,266
  3,317
  3,476
  3,644
  3,818
  4,001
  4,192
  4,393
  4,603
  4,824
  5,056
  5,298
  5,552
  5,818
  6,097
  6,390
  6,697
  7,019
  7,357
  7,711
  8,083
Operating income, $m
  288
  319
  350
  384
  419
  457
  496
  537
  580
  626
  775
  825
  879
  935
  994
  1,056
  1,122
  1,191
  1,263
  1,340
  1,420
  1,505
  1,594
  1,688
  1,787
  1,891
  2,001
  2,116
  2,238
  2,366
EBITDA, $m
  501
  537
  575
  616
  658
  702
  749
  798
  849
  904
  961
  1,021
  1,084
  1,151
  1,221
  1,295
  1,372
  1,454
  1,540
  1,631
  1,726
  1,826
  1,931
  2,042
  2,159
  2,282
  2,411
  2,547
  2,690
  2,841
Interest expense (income), $m
  0
  154
  164
  174
  184
  195
  207
  219
  232
  245
  259
  274
  290
  306
  323
  340
  359
  379
  399
  421
  443
  467
  492
  518
  545
  574
  604
  636
  669
  704
  741
Earnings before tax, $m
  134
  155
  177
  200
  224
  249
  276
  305
  335
  366
  501
  536
  573
  612
  653
  697
  743
  791
  843
  897
  953
  1,013
  1,076
  1,143
  1,213
  1,287
  1,365
  1,447
  1,534
  1,625
Tax expense, $m
  36
  42
  48
  54
  60
  67
  75
  82
  90
  99
  135
  145
  155
  165
  176
  188
  201
  214
  228
  242
  257
  274
  291
  309
  328
  348
  369
  391
  414
  439
Net income, $m
  98
  113
  129
  146
  163
  182
  202
  223
  244
  267
  365
  391
  418
  447
  477
  509
  542
  578
  615
  654
  696
  740
  786
  834
  886
  940
  997
  1,057
  1,120
  1,186

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  4,475
  4,715
  4,966
  5,229
  5,504
  5,792
  6,094
  6,411
  6,742
  7,090
  7,454
  7,836
  8,237
  8,657
  9,098
  9,560
  10,045
  10,554
  11,088
  11,649
  12,237
  12,854
  13,502
  14,181
  14,895
  15,644
  16,430
  17,256
  18,122
  19,032
Adjusted assets (=assets-cash), $m
  4,475
  4,715
  4,966
  5,229
  5,504
  5,792
  6,094
  6,411
  6,742
  7,090
  7,454
  7,836
  8,237
  8,657
  9,098
  9,560
  10,045
  10,554
  11,088
  11,649
  12,237
  12,854
  13,502
  14,181
  14,895
  15,644
  16,430
  17,256
  18,122
  19,032
Revenue / Adjusted assets
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
Average production assets, $m
  2,771
  2,920
  3,075
  3,238
  3,408
  3,587
  3,774
  3,970
  4,175
  4,390
  4,616
  4,853
  5,101
  5,361
  5,634
  5,920
  6,221
  6,536
  6,867
  7,214
  7,578
  7,960
  8,361
  8,782
  9,224
  9,688
  10,175
  10,686
  11,223
  11,786
Working capital, $m
  130
  137
  144
  152
  160
  169
  177
  187
  196
  206
  217
  228
  240
  252
  265
  278
  292
  307
  323
  339
  356
  374
  393
  413
  433
  455
  478
  502
  527
  554
Total debt, $m
  2,921
  3,102
  3,291
  3,490
  3,697
  3,915
  4,143
  4,382
  4,632
  4,895
  5,170
  5,458
  5,761
  6,078
  6,411
  6,760
  7,126
  7,510
  7,913
  8,337
  8,781
  9,247
  9,736
  10,249
  10,788
  11,353
  11,947
  12,570
  13,224
  13,911
Total liabilities, $m
  3,379
  3,560
  3,749
  3,948
  4,156
  4,373
  4,601
  4,840
  5,090
  5,353
  5,628
  5,916
  6,219
  6,536
  6,869
  7,218
  7,584
  7,968
  8,372
  8,795
  9,239
  9,705
  10,194
  10,707
  11,246
  11,811
  12,405
  13,028
  13,682
  14,369
Total equity, $m
  1,096
  1,155
  1,217
  1,281
  1,348
  1,419
  1,493
  1,571
  1,652
  1,737
  1,826
  1,920
  2,018
  2,121
  2,229
  2,342
  2,461
  2,586
  2,717
  2,854
  2,998
  3,149
  3,308
  3,474
  3,649
  3,833
  4,025
  4,228
  4,440
  4,663
Total liabilities and equity, $m
  4,475
  4,715
  4,966
  5,229
  5,504
  5,792
  6,094
  6,411
  6,742
  7,090
  7,454
  7,836
  8,237
  8,657
  9,098
  9,560
  10,045
  10,554
  11,089
  11,649
  12,237
  12,854
  13,502
  14,181
  14,895
  15,644
  16,430
  17,256
  18,122
  19,032
Debt-to-equity ratio
  2.660
  2.690
  2.710
  2.720
  2.740
  2.760
  2.770
  2.790
  2.800
  2.820
  2.830
  2.840
  2.850
  2.870
  2.880
  2.890
  2.900
  2.900
  2.910
  2.920
  2.930
  2.940
  2.940
  2.950
  2.960
  2.960
  2.970
  2.970
  2.980
  2.980
Adjusted equity ratio
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245
  0.245

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  98
  113
  129
  146
  163
  182
  202
  223
  244
  267
  365
  391
  418
  447
  477
  509
  542
  578
  615
  654
  696
  740
  786
  834
  886
  940
  997
  1,057
  1,120
  1,186
Depreciation, amort., depletion, $m
  213
  219
  225
  231
  238
  246
  253
  261
  269
  278
  186
  196
  206
  216
  227
  239
  251
  264
  277
  291
  306
  321
  337
  354
  372
  391
  410
  431
  453
  475
Funds from operations, $m
  311
  332
  354
  377
  402
  428
  455
  483
  514
  545
  552
  587
  624
  663
  704
  748
  793
  841
  892
  945
  1,002
  1,061
  1,123
  1,189
  1,258
  1,330
  1,407
  1,487
  1,572
  1,662
Change in working capital, $m
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
Cash from operations, $m
  304
  325
  347
  370
  394
  419
  446
  474
  504
  535
  541
  576
  612
  651
  691
  734
  779
  827
  876
  929
  984
  1,043
  1,104
  1,169
  1,237
  1,309
  1,384
  1,463
  1,547
  1,635
Maintenance CAPEX, $m
  -106
  -112
  -118
  -124
  -131
  -137
  -145
  -152
  -160
  -168
  -177
  -186
  -196
  -206
  -216
  -227
  -239
  -251
  -264
  -277
  -291
  -306
  -321
  -337
  -354
  -372
  -391
  -410
  -431
  -453
New CAPEX, $m
  -142
  -149
  -155
  -163
  -170
  -178
  -187
  -196
  -205
  -215
  -226
  -237
  -248
  -260
  -273
  -286
  -300
  -315
  -331
  -347
  -364
  -382
  -401
  -421
  -442
  -464
  -487
  -511
  -537
  -563
Cash from investing activities, $m
  -248
  -261
  -273
  -287
  -301
  -315
  -332
  -348
  -365
  -383
  -403
  -423
  -444
  -466
  -489
  -513
  -539
  -566
  -595
  -624
  -655
  -688
  -722
  -758
  -796
  -836
  -878
  -921
  -968
  -1,016
Free cash flow, $m
  56
  65
  73
  83
  93
  103
  114
  126
  139
  152
  138
  153
  169
  185
  202
  221
  240
  261
  282
  305
  329
  355
  382
  411
  441
  473
  506
  542
  580
  619
Issuance/(repayment) of debt, $m
  172
  181
  190
  198
  208
  218
  228
  239
  250
  262
  275
  288
  302
  317
  333
  349
  366
  384
  403
  423
  444
  466
  489
  513
  539
  566
  594
  623
  654
  687
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  172
  181
  190
  198
  208
  218
  228
  239
  250
  262
  275
  288
  302
  317
  333
  349
  366
  384
  403
  423
  444
  466
  489
  513
  539
  566
  594
  623
  654
  687
Total cash flow (excl. dividends), $m
  228
  246
  263
  281
  301
  321
  342
  365
  389
  414
  413
  441
  471
  502
  535
  570
  606
  645
  685
  728
  773
  821
  871
  924
  980
  1,038
  1,100
  1,165
  1,234
  1,306
Retained Cash Flow (-), $m
  -56
  -59
  -62
  -64
  -67
  -71
  -74
  -78
  -81
  -85
  -89
  -94
  -98
  -103
  -108
  -113
  -119
  -125
  -131
  -137
  -144
  -151
  -159
  -167
  -175
  -184
  -193
  -202
  -212
  -223
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  172
  187
  201
  217
  233
  250
  268
  288
  308
  329
  324
  348
  373
  399
  427
  456
  487
  520
  555
  591
  629
  670
  712
  757
  805
  855
  907
  963
  1,022
  1,083
Discount rate, %
  10.50
  11.03
  11.58
  12.16
  12.76
  13.40
  14.07
  14.77
  15.51
  16.29
  17.10
  17.96
  18.86
  19.80
  20.79
  21.83
  22.92
  24.07
  25.27
  26.53
  27.86
  29.25
  30.72
  32.25
  33.86
  35.56
  37.33
  39.20
  41.16
  43.22
PV of cash for distribution, $m
  155
  152
  145
  137
  128
  118
  107
  95
  84
  73
  57
  48
  39
  32
  25
  19
  15
  11
  8
  5
  4
  2
  2
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

The GEO Group, Inc. is a real estate investment trust (REIT). The Company specializes in the ownership, leasing and management of correctional, detention and re-entry facilities and the provision of community-based services and youth services in the United States, Australia, South Africa and the United Kingdom. The Company operates in four segments: U.S. Corrections & Detention, GEO Care, International Services, and Facility Construction & Design. The Company owns, leases and operates a range of correctional and detention facilities including maximum, medium and minimum security prisons, immigration detention centers, minimum security detention centers, as well as community based reentry facilities, and offers delivery of offender rehabilitation services under its GEO Continuum of Care platform. The GEO Continuum of Care program integrates in-prison programs, which include cognitive behavioral treatment and post-release services. _tck('aft');

FINANCIAL RATIOS  of  Geo Group Inc (The) (GEO)

Valuation Ratios
P/E Ratio 13.8
Price to Sales 1
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 8.3
Price to Free Cash Flow 21.4
Growth Rates
Sales Growth Rate 2.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 9.3%
Cap. Spend. - 3 Yr. Gr. Rate 4.4%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 152.6%
Total Debt to Equity 154.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 4%
Ret/ On Assets - 3 Yr. Avg. 5.5%
Return On Total Capital 4.5%
Ret/ On T. Cap. - 3 Yr. Avg. 4.4%
Return On Equity 11.1%
Return On Equity - 3 Yr. Avg. 10.6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 26.1%
Gross Margin - 3 Yr. Avg. 26.3%
EBITDA Margin 11.8%
EBITDA Margin - 3 Yr. Avg. 16%
Operating Margin 10.8%
Oper. Margin - 3 Yr. Avg. 11.8%
Pre-Tax Margin 5.6%
Pre-Tax Margin - 3 Yr. Avg. 6.7%
Net Profit Margin 7.6%
Net Profit Margin - 3 Yr. Avg. 7.4%
Effective Tax Rate -30.6%
Eff/ Tax Rate - 3 Yr. Avg. -10.9%
Payout Ratio 127.8%

GEO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GEO stock intrinsic value calculation we used $2331 million for the last fiscal year's total revenue generated by Geo Group Inc (The). The default revenue input number comes from 0001 income statement of Geo Group Inc (The). You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our GEO stock valuation model: a) initial revenue growth rate of 5.4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 10.5%, whose default value for GEO is calculated based on our internal credit rating of Geo Group Inc (The), is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Geo Group Inc (The).
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of GEO stock the variable cost ratio is equal to 76.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $293 million in the base year in the intrinsic value calculation for GEO stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.6% for Geo Group Inc (The).

Corporate tax rate of 27% is the nominal tax rate for Geo Group Inc (The). In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the GEO stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for GEO are equal to 112.8%.

Life of production assets of 24.8 years is the average useful life of capital assets used in Geo Group Inc (The) operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for GEO is equal to 5.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1040.503 million for Geo Group Inc (The) - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 120.476 million for Geo Group Inc (The) is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Geo Group Inc (The) at the current share price and the inputted number of shares is $2.6 billion.

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