I've been looking into Cal-Maine Foods ($CALM) and think it’s one of the more interesting value stocks out there right now.
Why I'm interested:
It’s the largest egg producer in the U.S., with around a 20% market share, which gives it a pretty big scale advantage.
It’s vertically integrated (owns hatcheries, feed mills, production, processing, and distribution), which helps keep costs down compared to smaller competitors.
It has around $1.1B in net cash and basically no debt, so the balance sheet is in great shape.
It’s trading around 1.5x book value, \~0.9x enterprise value/sales, and \~3x EV/EBITDA, which looks pretty cheap based on current numbers.
The obvious catch is that the stock looks cheap partly because earnings are still getting a boost from high egg prices after the bird flu supply shock. As the egg supply recovers, prices should gradually come back down over the next couple of years, so earnings will likely drop from today’s unusually high levels. That’s why the forward P/E looks a lot higher than the trailing P/E.
I still think the company has a real moat:
Huge scale in a fragmented industry.
Vertical integration.
Long-term relationships with major retailers.
A growing mix of higher-margin specialty and cage-free eggs, plus expansion into prepared foods.
The big question is whether the market has already priced in lower egg prices. If earnings normalize, the stock probably isn’t as cheap as the headline P/E makes it look. But with a strong balance sheet, buybacks, and a leading position in an essential food category, I don’t think it’s a bad business to own through the cycle.
Curious what everyone else thinks.
Is CALM a value trap because earnings are near a peak, or is the market being too negative on what normalized profits could look like? Thanks for reading lads