Corrections a Good Place to Enter
Corrections Corporation of America (CXW) holds a significant market share advantage over its peers, with a substantial pipeline of additional capacity scheduled to be added to the portfolio over the next two years. CXW is the clear leader in an industry with a strong outlook, supported by favorable economic and demographic trends.
Shares of CXW trade at 21.2x and 17.2x our 2008 and 2009 EPS estimates, respectively. The multiples represent a premium to peer group average multiples of 17.3x and 14.4x consensus 2008 and 2009 EPS estimates, respectively. We note, however, that the consensus estimates for one competitor have yet to be updated after the release of a disappointing full-year outlook and subsequent 17% sell-off in the shares. Additionally, shares of CXW are currently trading at approximately 10.9x and 9.1x our 2008 and 2009 EBITDA estimates, respectively.
Only 7% of detention and corrections facility beds in the country are currently outsourced to private companies, indicating the potential for significant growth in the overall market. Given the current uncertainty regarding the general economy, we view the company's high level of visibility regarding future operations favorably.
The share price declined approximately 8% following the release of Q2 results, primarily as the result of concerns over the delay of the intake of inmates from California at the company's Tallahatchie facility referenced above. We consider the delay to primarily be an issue of timing, and we believe that the long-term demand picture remains favorable.
We consider the current price to represent an attractive entry point, and as such, we reiterate our Buy rating on the shares, while maintaining our $33 price target. Our target price equates to multiples of 27.0x and 21.9x our 2008 and 2009 EPS estimates, respectively.
Alnylam Pharma Seeks Alliances
In the second quarter of 2008, revenue for Alnylam Pharmaceuticals, Inc. (ALNY) came in at $23.8 million, an 161% increase year-over-year, but less than our estimate of $33 million. The significant increase in revenues in the second quarter of 2008 was primarily related to $13.4 million of net collaboration revenues related to the company's alliance with Roche.
Revenues for the second quarter of 2008 also included $10.4 million of expense reimbursement and amortization revenues from Novartis AG (NVS), Takeda Pharmaceutical Company Limited, the National Institutes of Health (NIH), the Department of Defense (DOD), Biogen Idec, InterfeRx, research reagent and services licensees and other sources.
The company also announced a development and commercialization deal for ALN-RSV01 (currently in a second phase II trial) in Asia with Kyowa Hakko in June. We maintain our Hold rating on the shares of Alnylam with a price target of $38.5.
