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Cal-Maine Foods

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A day after posting solid fiscal first-quarter results, Cal-Maine Foods, Inc. reached a new 52-week high and became a Zacks #1 Rank (Strong Buy). The results included an earnings surprise of 50.0% during a quarter that is generally the toughest for this largest national producer of fresh shell eggs.

In addition to its performance, the stock is being driven by growing retail demand for its specialty shell eggs, an acquisition-based growth strategy and an attractive valuation.

Solid First Quarter Beat

On October 1, Cal-Maine Foods reported fiscal first quarter earnings of 39 cents per share, which beat the Zacks Consensus Estimate of 26 cents and soared 200% from the prior-year quarter.

Cal-Maine Foods reported net sales of $272.9 million, up 12.0% from last year thanks to higher pricing and a solid sales performance from its premium priced specialty shell eggs (highly nutritious, cage-free and organic eggs). The specialty egg sales gained from rising consumer demand and comprised 23.5% of total shell egg sales revenue for the quarter.

In early August, Cal-Maine Foods closed the acquisition on two egg production facilities from Pilgrim’s Pride Corporation, which have a capacity for approximately 1.4 million egg laying hens. The acquisition, which was announced in mid July, is expected to significantly expand the company’s business mainly in the Texas region, where the facilities are located.

Earnings Momentum on the Rise

Over the last 7 days, the Zacks Consensus Estimate for fiscal 2013 has gone up by 11.9% to $3.11, reflecting year-over-year growth of 18.3%. For fiscal 2014, the Zacks Consensus Estimate is at $3.27, reflecting a year-over-year growth rate of 5.1%.

Attractive Valuation

Cal-Maine Foods looks attractive at current levels. The stock currently trades at a forward price-to-earnings (P/E) of 14.99x, representing a discount of 20.7% to the peer group average of 18.90x. Shares trade almost in line with the peer group on a price-to-sales and price-to-book basis. Furthermore, the stock has a trailing 12-month return on equity (ROE) of 14.1%, which is above the peer group average of 9.9%.

Chart Showing Consistent Rise

Shares of Cal-Maine have been rising consistently since announcing the Pilgrim’s Pride acquisition. It reached a new 52-week high of $46.62 on October 2, a day after announcing solid first quarter results. Moreover, the stock is currently trading above its 50- and 200-day moving averages, which stand at $40.17 and $37.70, respectively. In fact, the stock has been consistently trading above its 50-day and 200-day moving averages since the end of July 2012.

Volume is strong, averaging roughly 125K daily. The year-to-date return for the stock is 26.21% compared with the S&P 500’s return of 14.96%.

Based in Jackson, Mississippi, Cal-Maine Foods is the largest producer and distributor of fresh shell eggs in the U.S. Its eggs are marketed across the southwestern, southeastern, mid-western and mid-Atlantic regions of the country. Its specialty shell egg brands include Egg-Land’s Best, Farmhouse, and 4-Grain. The company currently has a market cap of $1.09 billion.


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