CALM - Cal-Maine Foods: Attractive Economics Near-Term Tailwinds

2024-06-11 05:21:14 ET

Summary

• The poultry industry is experiencing another outbreak of avian influenza, which could lead to increased egg prices and benefit companies in the sector.
• Cal-Maine Foods, Inc. is the largest producer and distributor of fresh shell eggs in the US.
• The company's financial performance has been impacted by the outbreak, but its strategic adjustments and growing demand for cage-free eggs position it well for the future.

Investment summary

The poultry industry has been struck with another outbreak of the highly pathogenic avian influenza (“HPAI”) virus, and this has potential implications for companies within the domain. According to the USDA, weekly US table egg demand and loose egg sales are tracking in line with the last two years of business, with a "firm undertone". Our analysis highlights that when this has happened in the past, it causes egg prices to increase, resulting in a medium-term tailwind for companies operating in the domain.

Figure 1.

After breaking out to new highs at the start of the new year, we have been closely observing the equity of Cal-Maine Foods, Inc. ( CALM ), one of the country's largest producers and distributors of shell eggs.

CALM is a fully vertically integrated operation and the business only operates in one segment – shell eggs. The company is the largest producer and distributor of fresh shell eggs in the US, with a biomass of 42.2 million laying hens, and nearly 11 million pullets and breeders. Pullets are chickens less than 12 months old....

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