Why Corrections Corporation of America's Shares Dropped

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of prison operator Corrections Corporation of America (NYS: CXW) fell as much as 11% today after California announced spending cuts.

So what: California announced plans to cut billions of dollars from the prison budget by closing a prison and bringing back inmates housed out of state. Presumably some of the inmates being brought back to California will be taken out of Corrections Corp.'s facilities.


Now what: The effect of the reduction in costs isn't known yet, but any reduction in inmates is bad for Corrections Corp. The stock has been on a nice run in 2012, so this could also be some profit taking from investors in a rocky time for the market. I'd like to see more details before making a move on this stock. The California system is still overcrowded, and there are other levels of approval to go through before the plan is implemented so the market may be overreacting to today's news a little early.

Interested in more info on Corrections Corporation of America? Add it to your watchlist byclicking here.

At the time this article was published Fool contributorTravis Hoiumdoes not have a position in any company mentioned. You can follow Travis on Twitter at@FlushDrawFool, check out hispersonal stock holdingsor follow his CAPS picks atTMFFlushDraw.Motley Fool newsletter serviceshave recommended buying shares of Corrections Corporation of America. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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