Trump trades: Is it time to revisit prison stock GEO or bet on Harris’ win?

Following the recent attempt on Trump's life, markets are now pricing a 72% chance of his victory in the 2024 presidential election. GEO Group, one of the largest US private prison companies, saw its stock soar to $18.07 just a few days after the failed assassination attempt, marking a roughly 68.5% increase since January 1. However, with the euphoria at its peak, the stock also appears to have hit its high. Since then, the price has dropped by 34% due to the shifting likelihood of a Trump victory.

Election forecasts and GEO's disappointing earnings report

Betting markets now place the probability of Trump winning the November elections at 45.45%, with Kamala Harris now leading at 52%. As a comparison, Trump's chances were around 40% at the beginning of the year.

Additionally, GEO reported disappointing earnings. The EPS was $0.23 versus the expected $0.258, and revenue came in at $607.18 million compared to the $607.58 million expected. While revenues were $593.89 million a year ago, net income turned negative for the first time since 2019 after being positive in Q1. Although, the company explained in their earnings call that the losses seem to be a one-off issue.

Technical Analysis: key support levels

From a technical standpoint, the stock is back at an exciting level. It has returned to the levels seen in 2020 and to the breakout point of a long-term ascending triangle pattern spanning 1,260 days. To the relief of long-term investors, the breakout point held, and the support zone, ranging from $10.96 to $12.44, remains intact. As long as the price trades above $10.96, there’s potential for a return to 2024 highs, offering a balanced risk-reward scenario.

Fundamental outlook

The company remains stable and is likely to remain that way, but much of its future depends on the outcome of the presidential elections.

President Biden and Vice President Harris have shown little support for private prisons. In June 2024, CoreCivic (CXW), a rival to GEO, saw its stock drop around 20% following ICE's decision to cancel a contract with the company, leading to the planned closure of the nation's largest ICE detention centre by early August 2024. If Trump is elected, he may potentially reverse this decision. Moreover, Trump's commitment to tightening US border control could favour GEO if he wins. Currently, GEO and CoreCivic oversee only about 9% of the U.S. prison population, allowing for potential growth.

GEO, weekly chart