Research on Geodrill Limited (GEO) from Sidoti & Company
GEO announced that it had completed the sale of its Adelanto, California, ICE complex to the DHS for a gross value of $950 million ($705 million net). The sale is a positive outcome, in our view, with GEO monetizing owned real estate at an attractive valuation ($359,000 per bed) while lowering the capital intensity of the business. GEO is positioned to continue to operate Adelanto under long-term management contracts. GEO also announced it intends to redeem $650 million of debt with the proceeds, meaningfully derisking the balance sheet, in our view. We increase our EPS estimates to incorporate annual interest expense savings of about $56 million. Though excluded from our estimates, we expect GEO to execute on additional sales of turnkey detention facilities in the near term (in Colorado, Washington, and Pennsylvania). Aggregate proceeds would likely yield substantial capital (more than $1 billion, in our view) to go toward share buybacks. We introduce our 2028 estimates, which exclude any effect of potential facility reactivations or facility asset sales. Our revenue estimate of $3.5 billion is up 4% from 2027. At a stable 18% margin, we estimate adjusted (for stock-based compensation and certain non-recurring charges) EBITDA of $629.8 million in 2028. Potential facility reactivations under new contracts (about 4,500 idle beds available; $250 million annual revenue opportunity), higher Intensive Supervision Appearance Program (ISAP) volume/better mix, potential asset sales, and/or meaningful share buybacks represent potential upside catalysts to our estimates. We increase our price target to $36 (from $31), based on 18x our 2028 EPS estimate of $1.98 (was 18x our previous 2027 EPS estimate of $1.67). Our moderate risk rating balances GEO's stable revenue profile backed by government contracts and improving capital structure with occupancy trends and contract risk.
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