Why Caesars Entertainment, Corrections Corp. of America, and Core-Mark Slumped Today

By Markets Fool.com


Image source: Caesars Palace.

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The stock market did well on Monday, with the Dow gaining more than 100 points on the day. After having given up ground because of investor nervousness about the Federal Reserve's potential next move, market participants felt more bullish about the market's prospects to start the new week, especially in light of benign inflation data that suggest no imminent threat of major price pressures in the U.S. economy. Yet even though major market benchmarks were up modestly on the day, some stocks got left behind. Among the worst performers were Caesars Entertainment (NASDAQ: CZR), Corrections Corp. of America (NYSE: CXW), and Core-Mark (NASDAQ: CORE).

Caesars takes a big loss

Caesars Entertainment fell 16%, recovering from an even bigger loss but still facing a huge threat from creditors of its bankrupt operating subsidiary. A bankruptcy court ruling allowed arguments to go forward in a case that bondholders have filed against Caesars, arguing that the parent company had guaranteed debt obligations of the operating subsidiary. The dispute goes back to a reorganization that Caesars did to allocate assets and debts among various entities, and creditors argue that the moves that Caesars made unfairly took assets out of their reach. With the adverse ruling, Caesars itself might have to follow its subsidiary into bankruptcy, and that sent shareholders heading for the exits.

Corrections Corp. deals with another prison break

Private prison operator Corrections Corp. of America declined 4% after another shoe dropped in its potential loss of federal business. After taking a much larger hit when the Department of Justice said it would no longer use private prisons to house federal inmates, Corrections Corp. posted its smaller decline Monday when the Department of Homeland Security chose to take a closer look at its own private prison arrangements. Despite comments from the company that several other clients have indicated their willingness to keep using its facilities, Corrections Corp. nevertheless faces pressure that likely won't go away until the dust clears over the private prison industry more broadly.

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Core-Mark deals with the end of a supply contract

Finally, Core-Mark dropped 14%. The supplier of food and other products to the convenience store industry said that one of its contracts with key industry player Circle K will expire as of January. As a result of the loss, Core-Mark's total exposure to Circle K's nationwide store network will decline by about 1,100 stores, or more than a third. The contract covered stores in the Southeastern U.S., and Core-Mark CEO Tom Perkins said that he was "disappointed that we did not retain all of the stores during this renewal process, but our long-standing partnership with this industry-leading retailer remains strong." Some investors worry that the loss could just be the beginning for Core-Mark, especially if other major companies in the convenience store industry start facing the same pressures. If further business disappears, Core-Mark shares could have a lot further to fall.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool is short Caesars Entertainment. 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.