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Cal-Maine Foods - An Egg-Ceptional Buying Opportunity


  • Cal-Maine Foods, the leading fresh shell egg producer in the U.S., is hatching a plan while egg prices are at a low.
  • We see 40% upside as the market has punished Cal-Maine's shares due to depressed egg prices.
  • Cage free, organic and nutritionally enhanced eggs garner higher prices, and so should Cal-Maine.
  • Those who don't mind commodity risks should find egg-cellent risk reward ratio in Cal-Maine Foods.


Don't play chicken with this egg producer. While egg prices are well off of last year's average price of $1.79, and the Urner Barry price index recently hit a decade-low, Cal-Maine (NASDAQ:CALM) is well positioned for consumer trends, consolidation opportunities and to rebound from its 25% stock price pullback (from its 52-week high of $55.43). At KORR, we believe it is time to buy Cal-Maine Foods.

Cal-Maine is the leader in the industry with a total of 23% of the total market. The company continues to acquire competitors, having made 19 acquisitions since 1989, including the November 2, 2016, announced acquisition of the egg production assets of Foodonics International.

Soy bean meal and corn (feed) account for over 60% of costs. Prices of feed remain low and stable (averaged $0.43 per dozen eggs produced for the most recent quarter).

Regulatory and consumer preferences favor Cal-Maine, and provide pricing premiums for the specialty egg market. Specialty eggs currently account for 22.9% of Cal-Maine's total shell eggs sold and 46.7% of total revenues (most recent Q). The company's balance sheet, size, and business plan all favor CALM being a beneficiary of demands for cage free and other specialty egg demand, as capital costs associated with said shift present challenges for smaller and less financially capable producers. The industry will see more collaboration as evidenced by recently announced joint ventures between Cal-Maine with two large producers, Rose Acre Farms and Hickman's Egg Ranch. The joint ventures will increase Cal-Maine's specialty egg production and sales and are strategically located to certain markets.

The shell egg production industry has been and will continue to go through consolidation. We see Cal-Maine as a leader and winner.

Key Numbers (As of Q1, Q2 just came out last night)

Price: $43.25

Market Cap: $2.1B

EV: $1.82B

This article was written by

Kenneth Orr CEO, CIO and CRO – Series 65 Kenneth “Kenny” Orr is a graduate of Tufts University (’88 - Bachelor of Science) and completed case studies by Harvard Business School Executive Education Program - Concentration in Valuation and Strategic Acquisitions. Kenneth Orr joined a family-owned commodities trading firm called North American Agriculture Inc., and its sister company, Jake’s Products in 1988. Kenny’s roles included sourcing, buying and selling of physical commodities both domestically and internationally. In addition, Kenny led the acquisition of Jackson and Johnson, a leading ICC carrier in the northeastern United States, and sale of significant assets to cooperative Minnesota Corn Processors. During his tenure, which lasted five years, the company’s sales increased by 600 percent and the staff grew to 320 employees. Kenny became a shareholder in both companies. In 1993, Mr. Orr sold his interest in the companies and established his own investment banking firm. Kenny acquired Herold Securities in 1994. Herold was a Connecticut based broker dealer that focused on research. Kenny renamed the firm, First Cambridge Securities, and established offices in New York and Los Angeles, California. As chief executive Officer, Kenny built the firm to over 400 employees and more than 15,000 clients. Clearing through Bear Stearns, FCS quickly became one of Bear Stearns largest correspondents. FCS was an underwriter, syndicate member and or placement agent in billions of dollars’ worth of IPOs, secondary offerings and/or private placements. In addition to brokerage services, FCS maintained a proprietary trading desk, fixed income department and a research department. Co-underwriters and or syndicate members of FCS included Starr Securities, Fagenson & Co., Merrill Lynch, Bear Stearns, Montgomery, and Rausher Pierce. Notable under-writings and or initiated investment focus included, RentWay, which later sold to Rent-A-Center in 2003, and Ivax Corporation, which sold to Teva in 2005, creating the largest generic drug manufacturer in the world. After selling FCS, in 1997, Kenny invested through a venture firm he founded called Triumph. from 1997 through 2015, Triumph invested in micro to small public and private companies that showed promise in the fields of technology, oil and gas, biotech, and health care. Kenny became CEO of KORR Acquisitions Group, Inc. in 2015. KORR is an investment advisory and consulting company. Kenny passed The Uniform Investment Advisor Law Examination, Series 65, in 2015.

Analyst’s Disclosure: I am/we are long CALM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

We may add to our position or sell our position without updating this blog.Readers should consult their own investment adviser and do their own due diligence.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (24)

Korr Acquisitions Group, Inc profile picture
While I would agree in general with your and Fred's sentiment, AI greatly impacted exports. A lift of said ban would certainly help. Additionally, the business go through cycles of over and under producing. Cal-Maine remains best in class and in a great position to pounce on weaker competitors during the tough times. Look for great rewards when the shell egg prices rebound. IMO
Charlie's Munger profile picture
Who bought today? I did...
Fred Adams the founder of Cal Maine used to say that exports can bolster egg prices when production is in line or short of demand, but will provide little if any benefit when supply exceeds demand. Not sure how many if any shell eggs can or will get shipped to South Korea but I think the egg industry still has some struggles ahead.
I too love a pun. Considering that USDA quoted a 20 cent per dozen drop in large egg prices, Chicago, and a weak undertone (little more than a pull back,perhaps) and I see Zack is giving CALM a strong sell rating, buying a small position here might make an omelet out of your portfolio.
seedsmanj profile picture
Oh my god, pun overload! I love it. Looks like a good entry point here....just crossed 200 SMA. I might crack the shell and open a small position here...over easy
Korr Acquisitions Group, Inc profile picture
RE: CALM: Today we saw a pull back on shell egg prices. I see that as short term. i am looking for news from South Korea as to their allowing imports of US shell eggs (banned since our avian flu). The South Koreans have a shortage of eggs caused by an outbreak of avian flu in South Korea. This could help US exports and boast shell egg prices.
Joe Papa profile picture
Buy Cal-Maine right here. I think EPS estimates are too low based on rising Egg prices. Not sure about the whole long term trend towards specialty eggs, since this is ultimately a commodity stock. The risk-reward here is looking very favorable IMO.
Bous Investments profile picture
I am hearing about a higher price per dozen at the Grocery store. Maybe, I need a new shopper.
Korr Acquisitions Group, Inc profile picture
Help exports for CALM, SAFM, PPC and TSN.
How would the bird flu outbreak in Asia affect CALM?
Abelardo Fraga profile picture
I think that is a very good article despite I may not agree in some points. I do think that CALM is a great company for the many reasons the Author and the other commentators stated here. CALM is in my watchlist for buy since a while but I don't think it's yet the time to buy CALM. I think that it will take a while until we see either lower stock price or a bit longer to see the price of eggs much higher that we have right now. We have an over-supply of eggs and the transformation for cage free eggs will imply higher cost in the near term. It's hard to make any forecast here but it sounds that it may take longer than one year to be the right time to start buying CALM. I do not think that I want to buy any tranche right now. I think that CALM may be a buy early 2018.
Calvin Ott profile picture
Good article Korr
Couple of current industry positives:
1) Urnerbarry SE L must be in the $1.50 range which is really good even if it is a seasonal high. I believe there were a lot of features early in the month and would not be surprised to see some high export numbers when the December numbers are reported
2) There have been a number of worldwide case of bird flu lately, this may be good for exports.
3) Specialty egg sales per dz remained very high this last quarter. This was the most important number in the 10-Q

The chicken an egg report for today indicates 311 million hens, a high number. I would not get too excited about the low year over year hatch for the last four months. Last year more chicks were needed to repopulate empty houses. Current hatch is adequate to sustain hen numbers IMO. The current US flock is young and very efficient. Average age next year might be higher with lower efficiency. This is also a positive.

According to the most recent USDA cage free report, contract pricing has declined from the previous two months. It will be interesting to see if CALM can keep their specialty prices in the $1.95 price range for 2017 and beyond.


In my opinion higher grain prices are better for CALM than lower. Counter intuitive, but if you look at the last ten years and the ten years before that you can see CALM makes more when grain prices are high.

I liken CALM’s JV with RA to inviting the fox into the hen house. The South is CALM territory, why let RA in? With Hickman’s, CALM is the fox.

Long run CALM will end up expanding market share, but the wait for the great profits may be longer than some think. The industry was not hugely profitable for the decade ended 2002, this coming decade could be similar.
Korr Acquisitions Group, Inc profile picture
I am not suggesting this is a smooth ride, nor a straight line up. in fact, you will notice in my conclusion i suggest a 1/3 position allocation to start. My target is 6-12 months from now. We are investors, and not traders. One needs to understand the commodity risk associated with feed, and the volatility of egg prices.
Stockmaven profile picture
I think the stock is on a rough road. The holidays are supposed to be the best demand and yet eggs are sub $1 a dozen, The road is not so smooth as this author will have you believe. This is a commodity stock that is on the down cycle and that sucks.
I am a CALM investor but don't expect much soon. I think the road ahead is , at best rocky.
smurf profile picture

'15 was CALM's halcyon year, pps-wise and reflected an artificial situation due the bird flu when millions of fowl were slaughtered, creating a hen/egg shortage with resultant egg price spike and outsize profits. Ordinarily, the stock's very volatile, and dividend uncertain per my comment above.

Why do you think feed costs will remain favorable? Lot of people think energy costs will rise, which will affect processing costs of said feed.

All things considered, CALM is a commodity stock and is for traders, not investors, IMO.
Korr Acquisitions Group, Inc profile picture
Absent severe and unexpected weather, the crops look good for this year. Yields were high.
Korr Acquisitions Group, Inc profile picture
I actually think that CALM has done a great job in keeping their non-feed costs low. I also think that corn and soy (feed costs) will remain favorable for 2017.
wiredlitigator profile picture
Egg prices will go up... costs for sure increasing. Long calm.
Korr Acquisitions Group, Inc profile picture
Whether or not the eggs themselves are different, is irrelevant. What is relevant is the push for this...MCD, and WMT are following the path to cage free. And while the dividends have been cut the last two quarters, the 1/3 profit allocation to dividend shows they reward shareholders. The thesis has more to do with producers failing to be disciplined. This causes big swings in egg prices. In the long run (over ten years), i think the 56 producers will be reduced to maybe a dozen, which will lead to more stable pricing. But, as an investor, I recognize the trend towards cage free and specialty eggs. In addition, I believe the export market will come back, as the avian flu scare eases, and those that modified their recipes when egg prices peaked, will return gradually. Lastly, the opportunity to the stock buy is when the prices turn from the low. Not when they peak.
I am aware of the WMT stated intentions but I am having trouble accepting that WMT would try a JC Penney's and train or in this case force their customers to purchase eggs at a higher cost. For a dubious reason I might add. In the end I believe WMT will let the customer decide. (77%/23%)
smurf profile picture
Yes, but hasn't the problem with CALM been the fact that they will cut or suspend dividends if they have a lousy quarter, similar to European corporations? You can see this in their dividend history

What's up with this cage free stuff? What difference does it make if the birds are happy and relaxed if they're going to ultimately end up getting their heads chopped off anyway? Just another fad and, in some nutty states, costly and useless regulations so the greenies can feel all warm and fuzzy about themselves.
WTJ profile picture
next time you glance at what's in your frying pan,
look carefully at the color.
Is it more toward yellow or a healthy orange?
and do those yolks break and run with the slightest manipulation
or do they hold and stay consistent even when your turner gets gummy?
AND, before you get them in the pan,
do the shells break when you look at them,
or are they sturdy and break evenly when you soundly crack them?

Make the comparison.
HEALTHY layers produce HEALTHY, DELICIOUS eggs.
Clauser1960 profile picture
Smurf, many caged hens cannot move and try to kill themselves. In some countries they cut their beeks off to prevent suicide. This is torture.
'60 have you actually witnessed this bird suicide? How do they do it, hold their breath or pick themselves to death? Actually when birds are in larger groups, as the birds establish their pecking order(Dominance) the ones way down in the bottom of the order are more likely to be harmed. I think you are assigning human qualities, to animals that they may not possess.
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