Adopting C-Corp. In a not unexpected development, The GEO Group will become a taxable C-Corp., foregoing the existing REIT structure. The adoption is effective for the year ending December 31, 2021. The Company's Board also voted to discontinue GEO's quarterly dividend. The dividend was suspended this past April when management decided to explore changes to the corporate structure.Near-term Impact. Given the 2021 effective date, during the fourth quarter GEO will incur a one-time, non-cash deferred tax charge of about $75 million and also expects to incur approximately $34 million in incremental tax expense due to the resulting higher corporate tax rate for 2021. The fourth quarter tax expense includes about $26 million in connection with the first three quarters of 2021.A Positive. We view the move to a C-corp. structure positively, as it will free up cash flow to continue the Company's deleveraging and should reduce the reliance on debt funding going forward. YTD, GEO has reduced net recourse debt by $175 million. Once de-levered, future cash flows could be used to fund growth opportunities, as well as potentially return capital to shareholders via stock buybacks and/or dividends.Updated Projections. To update our 4Q and 2021 numbers, we added the additional $109 million of taxes. This results in a GAAP EPS loss of $0.57 in 4Q and full year EPS of $0.49. For 2022, the only change we made was to assume a 28% tax rate. This reduces our 2021 EPS to $1.17 from a prior $1.42 under the REIT tax rate.Favorable Risk/Reward. We continue to believe GEO shares represent a favorable risk/reward situation. We are maintaining our Outperform rating and a $15 per share 12-month price target. While COVID and the political rhetoric remain headwinds, there are limited alternatives to GEO's services and we believe the Company's real estate assets and high quality contracts eventually will be properly valued. Read More >>