The Easter Bunny Is Hopping Away With Cal-Maine Foods
In preparation for Easter weekend celebrations, the annual Christian holiday that commemorates the death and resurrection of Jesus Christ, investors may be looking at companies that benefit from egg hunts and other spring festivities as high inflation, interest rates and the geopolitical conflicts continue to affect markets.
The National Retail Federation's annual survey found American consumers will spend, on average, $177.06 this year on everything from church attire, a special meal and candy to cards and flowers. The collective amount of $22.40 billion is down slightly from $24 billion last year.
On the back of these trends, the GuruFocus Aggregated Portfolio, a Premium feature based on 13F and NPORT-P filings as of the end of fourth-quarter 2023, found one consumer defensive company that was popular with gurus, not to mention the Easter Bunny, was Cal-Maine Foods Inc. (NASDAQ:CALM).
Consumer packaged goods companies typically do well in all sorts of market environments as their products are considered necessities. While consumers likely favor using artificial and plastic eggs over dying real ones due to rising prices, sustainability and ease of use, many may still purchase them to use as part of their holiday feasts, whether in the form of deviled eggs or baked into a carrot cake.
Investors should be aware 13F and NPORT-P filings do not give a complete picture of a firm's holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
Business model and expansion
Founded in 1957, the Ridgeland, Mississippi-based company is the largest producer and distributor of fresh eggs in the U.S. Among its most well-known brands are Egg-Land's Best, Land O'Lakes and Farmhouse, producing organic, cage-free and other specialty products. Of its four divisions, the Conventional Shell Egg segment is the largest, generating 65.20% of its total sales in 2023.
Throughout its history, the company has grown by merging and acquiring other players. Earlier this month, Cal-Maine purchased a broiler processing plant, hatchery and feed mill in Dexter, Missouri from Tyson Foods Inc. (NYSE:TSN). It plans to remodel the facilities for the use of egg production, especially for its free-range capacity.
Further, in 2023, the company acquired the assets of Fassio Egg Farms Inc. in Utah.
While the terms of neither agreement were disclosed, they may be part of the $82 million in capital projects the board of directors approved back in 2022 to expand the company's cage-free egg production capabilities.
Earnings and financial overview
In January, Cal-Maine issued its earnings results for the fiscal second quarter of 2024.
For the three months ended Dec. 2, the company posted net sales of $523.20 million on $17 million in net income, or earnings of 35 cents per share. Ebitda came in at $54 million. All four figures were down from the prior-year quarter due to a combination of lower average selling prices for eggs, an avian flu outbreak that led to the depopulation of its flock and costs associated with an antitrust lawsuit.
In a statement, CEO Sherman Miller commented on the company's solid financial and operating performance despite the dynamic market conditions.
However, our total volumes sold were up slightly over a year ago, as consumer demand for shell eggs continued to be favorable in the quarter, especially leading up to the Thanksgiving holiday, he said. As always, we strive to offer consumers a wide range of quality choices in shell eggs as well as enhanced egg products offerings. Our ability to meet changing demand trends with a favorable product mix has been an important differentiator for Cal-Maine Foods. With solid execution, we continued to meet the needs of our customers.
Cal-Maine is scheduled to disclose its third-quarter results on April 2.
On the balance sheet, the company recorded $568 billion in cash, cash equivalents and marketable securities and no long-term debt despite its recent acquisitions. As a result, it has a robust interest coverage ratio of 974.03.
Further, GuruFocus has found that while the solid Altman Z-Score of 9.24 implies the company is in good standing, the Piotroski F-Score of 5 out of 9 means its operations typical of a stable company.
The company's board of directors also declared a quarterly dividend of 11.60 cents per share, which was distributed on Feb. 15. The dividend yield is fairly high at 5.05% and the payout ratio is 0.46.
Valuation
Generating a $3.03 billion market cap, shares of Cal-Maine Foods traded around $61.78 on Friday with a price-earnings ratio of 6.67, a price-book ratio of 1.86 and price-sales ratio of 1.14.
The GF Value Line suggests the stock is modestly undervalued currently based on its historical ratios, past financial performance and analysts' future earnings projections.
Further, the GF Score of 92 out of 100 indicates the company has good outperformance potential on the back of high ratings for financial strength, profitability, value and growth as well a more moderate momentum rank.
Guru and insider interest
While Cal-Maine's expansion efforts, valuation and dividend are appealing, the disappointing quarterly results may have put a dent in investors' enthusiasm.
As of the end of the fourth quarter, the Aggregated Portfolio shows eight gurus were invested in Cal-Maine with a combined equity portfolio weight of 0.60%. Notable shareholders include Jim Simons (Trades, Portfolio)' Renaissance Technologies, Steven Cohen (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and Ray Dalio (Trades, Portfolio)'s Bridgewater Associates.
However, while three gurus either added to their holdings or entered a position during the three months ended Dec. 31, six cut back or sold out of their stakes entirely. Although the stock saw increased buying activity among gurus during the first half of 2023, they were more bearish in the second half of the year.
Insiders of the company also appear to be slightly bearish on the stock. In February, three insiders cut back their holdings. Prior to that, there had not been any trading activity since March of 2023.
Final thoughts
Despite the increased selling activity in recent months, Cal-Maine's stock has gained nearly 10% year to date and 15% over the past year. If this momentum continues, investors stand to benefit from future gains as shares still appear to be undervalued.
This article first appeared on GuruFocus.
