The highly pathogenic avian influenza (HPAI), also known as the H5N1bird flu, has significantly affected U.S. poultry, resulting in the depopulation of roughly 38.4 million commercial layer hens and 1.8 million pullets (female chickens that have not yet laid eggs). This ramped up toward the end of 2024, with 13.6 million commercial layer hens and 500,000 pullets depopulated in December alone. The response to the recent outbreak has caused egg prices to surge, causing a strain on both consumers and food-related companies. According to the U.S. Bureau of Labor Statistics, the average cost per dozen of Grade A large eggs reached $4.15 in December, with prices expected to rise even further in 2025.
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Despite these challenges, Cal-Maine Foods (CALM), a leading U.S. producer and distributor of eggs, has reported full operational recovery of their Kansas and Texas facilities. Further, the company recently reported impressive financial results, beating revenue expectations, thanks to robust demand for shell eggs and a significant increase in sales over the seasonally active Thanksgiving period. Despite challenges posed by the ongoing bird flu outbreaks, the company continues to be optimistic about its growth trajectory, with strategic expansion plans and investments in place. Its shares have risen by 105% in the past year, though it continues to trade at a relatively reasonable valuation. Investors looking for a growth-oriented consumer defensive stock might want to give CALM a closer look.
Strategic Acquisition Enhancing Efficiency
Cal-Maine Foods is one of the nation’s largest producers and distributors of fresh shell eggs. The company’s operations span production, grading, packaging, marketing, and distribution of a diverse range of eggs, including conventional, cage-free, organic, brown, free-range, pasture-raised, and nutritionally enhanced options. The company has a broad market reach, selling its shell eggs across the United States.
The company recently announced the acquisition of assets from Deal-Rite Feeds, Inc., which includes two feed mills, storage facilities, usable grain, vehicles, related equipment, and a retail feed sales business in North Carolina. The purchase, financed by the company’s available cash reserves, offers strategic advantages due to the assets’ close proximity to Cal-Maine Foods’ egg production facilities in North Carolina.
Due to reduced transport distance, the newly acquired feed mill operations will allow the company to formulate, produce, and deliver feed at a lower cost. Feed is a crucial cost factor for egg production, so Cal-Maine Foods can now control the quality and composition of feed that directly affects the health of hens and the nutritional value of shell eggs. The Company’s CEO, Sherman Miller, highlighted that this acquisition will help manage production costs and enhance efficiency.
A Significant Uptick in Financial Results
The company recently reported results for the second quarter of Fiscal 2025, surpassing expectations with revenue of $954.67 million, outperforming analyst projections by $203.17 million. This increase was primarily driven by the rise in shell eggs’ average selling price and total dozens sold. During the second fiscal quarter, the company sold 329.8 million dozens of shell eggs, compared with 288.2 million dozens in Q2 2024. This marked an increase of 8.9% in conventional egg sales and over 25% growth in specialty egg volumes.
Net income was $219.1 million, a significant increase from $17.0 million in Q2 2024. The GAAP earnings per share (EPS) of $4.47 beat analyst projections by $0.79 while marking a dramatic improvement over the $0.35 per diluted share the same quarter in the previous year.
Cal-Maine Foods has announced a cash dividend of approximately $1.49 per share for the second quarter of fiscal 2025. The dividend will be given to holders of its Common Stock and Class A Common Stock. It is due to be paid on February 13, 2025, to holders on record as of January 29, 2025.
Looking forward, CEO Sherman Miller states the company is making more strategic investments to expand its operations given the continued demand outpacing supply. It has $60 million directed to new capital projects for cage-free capacity expansion, which is expected to provide additional production capacity for approximately 1.1 million cage-free layer hens and 250,000 pullets by late summer 2025.
Positive Momentum and Reasonable Valuation
The stock has been on a strong run, climbing over 204% in the past three years. It trades near the high end of its 52-week price range of $54.53 – $116.41 and shows positive price momentum by trading above the 20-day (107.93) and 200-day (81.17) moving averages. The P/S ratio of 1.73x sits above the Consumer Staples sector average of 1.19x but appears to be a reasonable premium given its recent growth rates.
The company is thinly followed by Wall Street. Most recently, Stephens analyst Pooran Sharma raised the price target on its shares to $97 (from $88) while reiterating an Equal Weight rating, noting the Q2 earnings beat, with extremely tight supply positioning the company for another strong quarter.
Cal-Maine Foods is rated a Hold based on the recent analyst recommendation. The average price target for CALM stock, $97.00, represents a potential downside of -11.34% from current levels.
See more CALM analyst ratings.
CALM Stock in Summary
Cal-Maine Foods has shown resilience in light of the devastating effects of the H5N1 bird flu outbreak on the U.S. poultry industry. Despite the rampant strain on the market, the company has successfully reported a full recovery of specific facilities impacted, demonstrating impressive financial results and a considerable increase in sales. Strategic investments are set to lower production costs, increase efficiency, expand operations, and help satisfy the unyielding demand for their product. While Cal-Maine’s shares have risen considerably in the past year, the valuation remains reasonable, making this an egg-cellent opportunity for investors seeking a resilient consumer defensive stock.
