broxton street

Should You Put Your Eggs in Cal-Maine's Basket?

Just wanted to comment on this article that’s been hangin around this stock :


Firstly: all securities valuations models are based on future earnings and dividends or asset appraisals. see Grahm and Dodd or anything related to this subject. (according to the authors method Enron Stock would still be worth something) So lets start at or around any currently recognized valuation methodology.
Secondly although interest rates have some bearing on equity values; Bonds aren't a good proxy for individual equity values
Thirdly: seasonality is no reason not to own a company; see KO and PEP
so i guess no I do not really believe that a 10 year avg ROE is where you start on this stock; its not real world

Also the author comments that CALM has de-leveraged somewhat..
the company has generated enough cash to pay off 100% of debt in 9 months.So saying that the company has deleveragered somewhat is a little bit of an understatement

CALM is not cyclical in the traditional sense..so I guess the author is saying something to the expansion and contraction of layers effecting the $ per dozen. This works in deflationary or a stagnant inflation environment ,inflationary environments are somewhat different. Currently layers would need to expand and contract along an inclining trend line to create the same effect in this environment. See Inflation effects of
also this is a commodity business with no competitive advantages?
Specialty eggs are 15% of the company's revenues and they are operating with 3 or 4 growing brand names. Actually if you deduct the copack revenues its 18% of their revs. so their brand names like egglands, which have lower cholesterol, sell for a 80% premium to generic so I might (anyone might) consider this a competitive advantage. I guess that I don’t need to go into marketing 101 as well.

Low multiple = do not buy? You aren't at the high point in the cycle so the foregone conclusion of this statement is that the prices peaked (doesn’t look like it).
Typically the multiple expands as the earnings do,.
Reality: there are no visible capacity increases and it looks like 2009 will bear higher prices..
so this is pretty similar to steel coming out of the 20 year slump..X traded at 6X or 15 bucks in 2004 before going to 150.00 so it takes a little while for investors to realize that things have changed. yes its great to pull down 10 years of Reuters data and pen some baseless comment from it but one should ask this question
If this industry is going to blow out as it is wont to do
why are the number of layers trending down for the last 18 months on the back of a 100% upmove in combined regional prices?

So maybe a good short someday but the guys that shorted X @ 16 or 30 aren't around to pick up the phone anymore and their Hedge Funds are gone. So possibly you should wait for confirmation of the additional capacity or something in the pullet #s before.... drawing predetermined conclusions on dubious methodology?