Investing in CCA 101: What You Should Know

When it comes to investing in CCA or any stock, knowing what’s what can be tricky. Whether you already invest, are thinking about it, or simply don’t know where to start, this new InsideCCA series – “Investing in CCA 101” can help. We sat down with Karin Demler, CCA director, Investor Relations, to find out what employees need to know about investing in CCA or any company.

Q: What does it mean to be a publicly-traded company? What are the benefits?

A: Being publicly traded means that a company sold stock to the general public to raise money, either to start up the business or to fund its growth. In order to grow, companies require capital (or money) to fund research and development, and add buildings, equipment and employees.

Oftentimes companies can borrow money but not necessarily enough to fund their businesses. Upon deciding to access the public equity markets, a company will undertake an Initial Public Offering (IPO). Investors buy the stock in an IPO, and they have the ability to hold the stock for as long as they want. A market for the stock is created on a stock market exchange, such as the New York Stock exchange, and the stock is then traded between buyers and sellers.

In 1986 CCA raised cash to grow by going public and issuing stock in an IPO. CCA originally went public by offering approximately 1.9 million shares of common stock in its IPO and raised about $16 million to fund growth.

The benefit to the shareholder is that they own a piece or stake of a company, but have the flexibility to buy more or sell their stake. The company benefits by being able to raise a lot of money quickly without incurring debt.

Q: Who owns CCA?

A: The shareholders own CCA. CCA’s shareholders are individuals and mutual funds. Mutual funds pool large amounts of money from individuals who want to invest.

If you participate in CCA's 401K plan and allocate a percentage of your contribution to CCA stock, if you’ve invested in a mutual fund that invests in CCA, or if you own stock directly in your brokerage account, then you are a part owner of CCA.

Q: As an investor, what should I know about CCA or another company?

A: There are many reasons why people make investments – for current income, for long-term appreciation in value (such as savings for retirement), etc.

For current income you may elect to invest in stocks that pay dividends. CCA does not currently pay a dividend because it uses profits to fund future growth instead. So you would not invest in CCA if you were looking to generate income. It’s important to think about your investment horizon and how much risk you are willing to take with your investment. Remember, investing in stocks is essentially a bet or prediction that a company will perform financially at a certain level, causing its stock to appreciate. Then you, in turn, make money. The higher the risk in the company's underlying business the higher the potential return, but also the higher the risk for losing your money; the lower the risk the likelihood for a lower return, but also generally a lower risk of losing your money.

Although investing your money in CCA or any company is mechanically quite simple, you should endeavor to understand a number of things about your potential investment. A few of these things include:

• What does the company do?
• How much cash does the company have and how much does it generate from its operations?
• How profitable is it? (How much is its net income?)
• How much debt does it have and how much is its interest cost (interest payments on existing debt reduce capital available for new investment)?
• When does that debt mature and will the company be able to refinance?
• What is the outlook for the company in terms of growth, long and short term?
• Does it have enough cash to grow or will it be required to issue more stock or borrow more?
• How has it performed in the past?
• What are the risks and opportunities for the company?
• Who are its competitors?
• What is the quality of management?
• How expensive is the stock? (A company's stock price is often measured by its multiple – or the stock price divided by its expected earnings per share – to determine how expensive a stock is, relative to its historical price or its peers.

Investors should research companies and continuously monitor the companies they invest in, by reviewing financial statements and other public filings with the Securities and Exchange Commission (SEC), monitoring press releases on a regular basis, listening to earnings conference calls, etc. All of this information is available on publicly traded companies’ websites.

CCA’s financial statements, descriptions of risks and descriptions of key company events are filed in their quarterly and annual filings with the SEC (10Q's and 10K's, respectively). They are also provided on the company’s Investor Relations page. From that page, you can tune in to a webcast of each quarterly investor call, view up-to-date stock quotes, find definitions of financial terms, company news releases and more.

Q: Why is it important to increase shareholder value?

A: Shareholders invest in companies for various reasons, but primarily to make more money than they invested; they have expectations and they want results. Analysts who continuously research companies make predictions on a company and set "street expectations" based on information from the company itself.

Companies that exceed or raise expectations often see their stock rise. If they miss or lower expectations, companies will generally see their stock price fall. It's really a matter of supply and demand; the better the outlook, the more people want to buy the stock and the price rises. But when people are less optimistic, fewer people buy and as a result the stock falls.

The higher the price of the stock, the cheaper the company's cost of capital and the more money the company can raise for productive endeavors.

Q: How well did the company perform financially in 2009?

A: Generally speaking, CCA met investor expectations for 2009 and was rewarded with a relatively stable share price. We generated earnings of $1.28 per share or 6.67 percent growth over 2008 earnings per share - decent growth in a challenging environment.

But, most investors look at more than our performance in 2009. What they really want to know is how the company expects to perform in 2010 and beyond. CCA's stock price is substantially based on such expectations.

Q: How is the company expected to perform in 2010? Why are we not growing in 2010?

A: Due to the continued state budget difficulties, our outlook is challenging. We expect that our 2010 earnings per share will be between $1.16 and $1.26, which is lower than last year. That decrease has caused the market to lower its expectations and as a result, our stock price has been impacted. The market currently expects CCA to achieve $1.22 earnings per share in 2010 and $1.29 per share in 2011.

By executing our business plan, we can produce results that yield higher earnings expectations. As employees, we can help improve results, by filling beds and controlling what we can (such as spending less) we are creating better results for our shareholders, which may include you.

Next in our series, we’ll break down investor terminology. Keep checking back for more information.

This article is not intended to serve as a recommendation or advice for investing in the company or other stock. For more information on an investment portfolio, we recommend that you consult a financial advisor. If you do not have a financial advisor, please contact Ward Financial Advisory (WFA) of Wells Fargo Advisors toll-free at 1-866-372-1196.