Why Corrections Corp. of America Stock Plummeted Today

By Markets Fool.com

Image source: Getty Images.

Continue Reading Below

What:Shares of Corrections Corp. of America (NYSE: CXW) plunged more than 35% Thursday after the U.S. Department of Justice revealed it will phase out its use of private prisons.

So what:More specifically, Deputy Attorney General Sally Yatesnotedthat, thanks to the DOJ's Smart on Crime Initiative, which identified "reforms that would ensure more proportional sentences and effective use of federal resources," the country is seeing declining numbers in its prison population -- something fellow Fool Rich Smith astutely pointed out late last year. As such, Yates stated:

Today, I sent a memo to the Acting Director of the Bureau of Prisons directing that, as each private prison contract reaches the end of its term, the bureau should either decline to renew that contract or substantially reduce its scope in a manner consistent with law and the overall decline of the bureau's inmate population. This is the first step in the process of reducing -- and ultimately ending -- our use of privately operated prisons.While an unexpected need may arise in the future, the goal of the Justice Department is to ensure consistency in safety, security and rehabilitation services by operating its own prison facilities.

For perspective, the decision also follows the release of a separate report from the DOJ last week, indicating privately operated prisons are less safefor both inmates and staff than those run by the Federal Bureau of Prisons.

Now what:Corrections Corp. of America won't feel the impact of the DOJ's decision immediately, but rather over time as each of its federal contracts expires. And investors will need to wait to hear from the company to better quantify how this changes its long-term direction. But for now, it's no surprise to see shareholders taking a big step back from CCA today, and I think it would be wise to watch its story unfold from the sidelines.

Continue Reading Below

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.