The GEO Group: A Closer Look After Earnings

The GEO Group's recent earnings have made it cheaper, but it's not time to buy. The company's stock price has decreased, but it was previously undervalued and has become fully priced. The author advises caution and suggests waiting for a better entry point.

In recent weeks, Geo Group Inc. (NYSE:GEO) has experienced a significant drop in its stock price, despite reporting improved financial results for the second quarter of 2025. The company's earnings per share (EPS) of $0.22 surpassed analyst expectations of $0.17, and revenue reached $636.2 million, exceeding the forecasted $621.99 million [2]. However, the stock experienced a decline during the regular trading session, although it showed a slight recovery in pre-market trading.

The drop in stock price can be attributed to several factors. Firstly, the company faces ongoing legal challenges. The Ninth Circuit Court of Appeals recently denied Geo Group's petition for rehearing en banc in two related cases, Nwauzor v. The GEO Group, Inc. and State of Washington v. The GEO Group, Inc. [1]. These cases involve claims that Washington State minimum wage laws apply to detainees who volunteer for work programs at the Northwest ICE Processing Center, which is operated by Geo Group under contract with the U.S. Department of Homeland Security. The denial of rehearing en banc means that the company must now face the full judgment of $23.2 million plus approximately $14.4 million in attorney’s fees, costs, and pre-judgment interest, which continues to accrue under Washington law [1].

Secondly, Geo Group's stock was previously undervalued, but recent developments have led to a re-evaluation of its valuation. The company's market capitalization of $2.9 billion reflects its current valuation, which is now considered fully priced [1]. Despite the improved earnings and revenue figures, the stock's decline during the regular trading session indicates that investors are cautious about the company's long-term prospects.

Investors should exercise caution before purchasing Geo Group's stock. While the recent earnings report indicates strong performance, the company's legal challenges and the potential for political shifts in federal detention spending contracts pose significant risks. Geo Group's outlook anticipates $3.8 billion in revenue and $571.5 million in earnings by 2028, implying a 15.4% annual revenue growth rate and a $483.1 million increase in earnings from current earnings of $88.4 million [3]. However, these projections are contingent on continued high facility utilization, which is driven largely by immigration enforcement policy.

In conclusion, while Geo Group's recent earnings have made it cheaper, it is not time to buy. The company's stock price has decreased, but it was previously undervalued and has become fully priced. Investors should wait for a better entry point, considering the company's ongoing legal challenges and the potential for political shifts in federal detention spending contracts.

References:
[1] https://www.investing.com/news/sec-filings/geo-group-receives-ninth-circuit-denial-of-rehearing-in-washington-wage-cases-93CH-4198604
[2] https://www.tradingview.com/news/reuters.com,2025:newsml_L1N3U50M0:0-geo-group-loses-latest-bid-to-nix-23-mln-verdict-over-immigrant-detainee-pay/
[3] https://simplywall.st/stocks/us/commercial-services/nyse-geo/geo-group/news/did-improved-results-and-a-300m-buyback-just-shift-geo-group