2Q20 Results. GEO reported second quarter revenue of $587.8 million, EPS of $0.31, and AFFO of $0.66. In the same period last year, the Company reported revenue of $613.9 million, EPS of $0.35, and AFFO of $0.70. While above management expectations, results were negatively impacted by the COVID crisis, which reduced populations and increased costs. We had estimated revenue of $585 million, EPS of $0.26, and AFFO of $0.57.Retaining REIT Status but Cutting Dividend. GEO has determined to maintain its REIT status, although the Company announced a dividend cut to a projected annual $1.36 per share, down from the previous $1.92. Even at the reduced rate, the yield is still 12.6% as the stock price declined from the mid-teen level prior to the pandemic.Capital Allocation. With the dividend reduction, management pledged to use available free cash flow to reduce debt. The goal is for $100 million of debt reduction this year with an additional $50-$100 million annually thereafter. Management also announced a plan to market idle, underutilized, and underperforming facilities with a goal of raising an additional $100 million which also would be used for debt reduction.Updated Projections. GEO continues to perform in spite of COVID, and other, challenges. However, reduced populations and the loss of a major contract will impact 2H operating results. We are projecting 3Q20 revenue to decline to $580 million, EPS of $0.27, and AFFO of $0.60. Full year estimates are revenue of $2.34 billion, EPS of $0.99, and AFFO of $2.33.Maintaining Outperform. We are maintaining our Outperform rating and a $15 12-month price target. At our $15 price target, GEO shares would trade at 9.3x our projected 2020 FFO, 6.4x our 2020 AFFO estimate, and 9.8x on an EV/EBITDA basis. While COVID and the political rhetoric are headwinds, we believe the Company's real estate assets and high quality contracts eventually will be properly valued.Read More >>