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About Cal-Maine

Since as far back as I can remember, I have never been a fan of eggs.

Something about the texture (yes, in all forms) just gives me the ick, as the kids say nowadays.

That is exactly why I will not be applying for a position at Cal-Maine anytime soon, as this company has an intense, vertically-integrated focus on producing, distributing and selling shell eggs to basically anyone who wants to eat them, whether it is through a global restaurant chain or a prominent grocery retailer, Cal-Maine owns a quarter (yes, a whopping 25%) of the shell egg market in the United States, with farms, manufacturing plants, distribution centers among other facilities scattered all over the Country.

It is definitively the largest producer and distributor of fresh shell eggs in the United States.

While I don’t like much of anything about eggs, I’ve learned a little about the egg business upon performing some preliminary research, and it seems like the same as most other food processing and distribution businesses; brutal.

For starters, given this company’s extensive market share, it has a correspondingly high amount of facilities and only what I can assume to be a wide pool of long-term liabilities (namely, real estate and equipment therein, along with trucks and other logistics capital components), which, with respect to other areas, I am not as worried about, however, believe it or not this company is prone to commodity swings that can hurt margins just as much as it can help them. 

Primarily, egg prices are well known for being quite volatile, largely rooted in its hyper-sensitive supply and demand dynamics, as when imbalances occur, a lot has to go right in order to restore order, such as flocks sufficiently repopulating, with this alone imposing a major strain on supply when a shortage occurs. Plus, demand for shell eggs is actually pretty seasonal, with consumers typically demanding more eggs during the fall and winter seasons (a few reasons being that most schools are back in session in the fall and with the holiday season, meals tend to involve folks and families eating and using eggs (baking) on a heightened basis). Of the most essence is likely this company’s susceptibility to the variety of impacts of highly pathogenic avian influenza (HPAI) outbreaks, being a sort of unique but all too major disruption in global egg supply, not to mention yet another commodity cost this company is subjected to, feed costs. 

Something a bit more supplemental but important to recognize is that Cal-Maine, among many other food giants, is frequently under the watchful public media eye, specifically when it comes to how it treats animals and produces its eggs, but in being completely honest, I don’t view this as much of a major threat for this company, as it has oodles of expensive lawyers and public relations czars that protect this company’s reputation day in and day out, and if the worst possible outcome were to occur, Cal-Maine can more than likely take the fine and skip right along, business as usual.

Trust me, I’m not trying to be the bearer of bad news right off the bat, but a downside-focused and informed investor is a better investor, and it would be wise for anyone even merely considering looking into Cal-Maine further as an investment to know some these prevailing headwinds that this company, I’m afraid to say, is likely subjected to indefinitely. 

It ain’t all bad news, though, as for some tailwinds pushing Cal-Maine forward, some include being on the sunny-side-up (don’t you love my sense of humor?), in terms of commodity cycles, but more tangibly and reliably, Cal-Maine is also benefiting greatly from a very egg-hungry consumer, as many of the younger generations favor eggs, as they are promoted as being pretty darn healthy and easy to eat in many different contexts. Also, with more consumers focusing more time, energy and dollars towards maintaining more protein-rich diets, Cal-Maine is surely set to gain from such a trend, as eggs are quite rich in protein. The last thing I’ll say before learning more about the company’s financials is that this company’s management has been doing a good job at consistently growing through acquisitions. A few examples include its recent buyout of ISE America (one of the top 25 egg producers in the United States), Fassio Egg Farms’ shell eggs division, and a broiler processing plant, hatchery and feed mill from Tyson Foods in Dexter, Missouri, all furthering the company’s strategic expansion on all production fronts.

At any rate, allow me to cut back on the babbling a bit and let the numbers do more of the talking, all with the intent of crafting a decision as to whether or not this company’s public stock (NASDAQ: CALM) is worth pondering an investment or not.

Cal-Maine’s stock financials

In making sure I put the chicken before the egg (sorry, I need help), we can first note that Cal-Maine is a $3.94 billion enterprise (according to its current market capitalization) with a directly correlated stock price of $89, a price-to-earnings (P/E) ratio of 10.19 and shells out (I’m really sorry) an annual dividend of $2.92, all of which initially tells us that this company has got to have some decent positive cash flow given that it can afford to pay out a dividend at this rate, and perhaps more pressing is the company’s valuation, which seems to be initially attractive, since it is less than the commonly ascribed to fair value benchmark of 20, indicating that its shares are presently undervalued.

Moving along, when it comes to the form of Cal-Maine’s balance sheet, the company’s executives are at the helm of almost $2.2 billion in terms of total assets as well as $385 million in terms of total liabilities, which isn’t what I expected at all before delving into its books.

That is, in the best way possible.

I mean, come on, this is a company with a lot of moving parts (and chickens) and costs to control, yet it has an absurdly total asset-heavy balance sheet, with a great deal of cash on hand that it can deploy in order to continue steadily growing its national presence both internally as well as through acquisitions. This balance sheet breakdown gives Cal-Maine an inordinate amount of options and I’ve really never seen such an established company with this much of a cash and asset-rich balance sheet, and it is hard to envision the firm not continuing putting some of its cash strategically to work in the years, decades and centuries to come.

Onto the company’s income statement, Cal-Maine’s revenues between 2020 and 2024 have been somewhat emblematic of the company’s susceptibility to volatility, as discussed earlier within this stock analysis article. Specifically, the company’s revenues between 2020 and 2022 ranged between a relatively insignificant bound of $1.3 billion and $1.7 billion, however, in the years that followed, they spiked a bit, reported as $3.1 billion in 2023, letting off a little steam in its latest reported revenue figure of $2.3 billion in early June 2024, still touting growth.

Growth is good.

One of the more interesting reasons behind Cal-Maine’s defined growth in 2023 actually lies in an HPAI outbreak, acting as a positive in that it allowed the company to charge higher prices due to lower supply yet steady, if not rising demand during this era.

While no one should ever hope for such an occurrence, it was obviously a short-term tailwind for the company, as evidenced by the company’s sales coming down a bit in its 2024 report, with prices stabilizing as a result of HPAI threats being largely neutralized and supply chains being built back up as a result.

Did I mention that eggs can be a volatile market?

Nonetheless, this company has grown its revenues largely through the ups and downs and given its acquisition history and its incredible balance sheet, sure, bouts of volatility will always exist, but the company has positioned itself quite well in light of this reality.

As it relates to the company’s cash flow statement, Cal-Maine’s total cash from operations during this same timeframe have ranged quite a bit, but the general overlay of growth has still remained, on the net ranging between a relative low of $26 million in 2021 and a high of $863 million in 2023 (thank goodness for HPAI, Cal-Maine’s executives might say), hitting all other sorts of bases in other years, but this sort of ginormous range doesn’t concern me all that much since this is definitely one of those companies that has to be somewhat opportune regarding when it should aggressively invest and reinvest and when it might be more prudent to stay a bit more defensive and not invest as much, given prevailing cycles, among other factors.

Cal-Maine’s stock fundamentals

According to the figure displayed on Charles Schwab’s platform, Cal-Maine has a net profit margin of 11.88%, which, at a more historical glance, is very strong, as the company’s net profit margin was as low as 0.15% in fiscal year (FY) 2021, plus it is also worth noting that net profit margins in the industry overall average out to about 5% on the lower end and to 10% on the higher end, Cal-Maine clearly stretching out of that benchmark and being all the more competitive.

Don’t get me wrong, as there have and likely will be times moving forward where Cal-Maine feels margin pressure, but given its other relatively strong components, pricing power and other positives, a lot has to go wrong in order for this company to see breaking even again.

As to the main reason behind the company’s recent net profit margin improvement, it is hardly surprising that the firm benefited handsomely from the price of eggs rising across the board, even in more stable economic times, not to mention that management has also been able to meaningfully bring down production costs, all directly impacting the company’s bottom-line stature.

Should you buy Cal-Maine stock?

While volatility seems to be a constant in the industry in which Cal-Maine operates, it has set itself up to endure the ups, and more importantly, the downs.

Namely, with a balance sheet as remarkably asset-heavy as this one’s, generally growing revenues and cash flows in most recently reported years combined with the company’s promising net profit margin growth, the company’s current valuation just feels like it’s the cherry on the top of the shell egg.

That’s definitely not how that expression goes, but the fact remains that Cal-Maine, being as large and frankly powerful a vertically integrated shell egg company as it is today, has more tailwinds pushing it than headwinds hindering its progress, and I am most comfortable in lending the company’s stock (NASDAQ: CALM) a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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