Shares of Cal-Maine (CALM) are up 80% in the past year. While it may be surprising that an egg and egg products maker had a torrid performance in a year otherwise dominated by AI, tech stocks and crypto, the results show that Cal-Maine was still a big winner. And what’s even more surprising: it’s still a compelling buy even after this impressive run.
I’m bullish on Cal-Maine stock based on its strong recent performance, strong positioning in the current consumer environment, favorable long-term positioning, cheap valuation and above-average dividend yield.
Based in Mississippi and founded in 1957, Cal-Maine is the largest producer and marketer of fresh eggs in the United States. It sells eggs, egg products and various other foods under brands such as Egg-Land’s Best, Farmhouse Eggs, Land O’ Lakes, Sunups, Sunny Meadow and more.
Cal-Maine sells its products to high-profile customers such as Walmart (WMT), Costco (COST), Publix and others.
As a major egg producer, Cal-Maine is well positioned in the current economic climate, where many consumers are feeling inflation. Eggs are widely seen as an inexpensive source of protein, something that everyone needs.
And while the price of eggs has increased, it has not increased as much as many other foods, especially compared to other common protein sources such as meat. Cal-Maine points out that a “standard serving” of one egg costs about half the price of four ounces of chicken and less than one-fifth the price of a quarter pound of beef, making them a good option for consumers around the world. challenging economic times.
Because eggs are a low-cost, high-protein option, eggs are an attractive choice for consumers in the short term, but eggs are also well positioned for the long term. A whopping 97% of American households purchase eggs, making them as much of a universal choice as they are in today’s America. In addition, under new proposed guidelines from the FDA, eggs will be labeled as a “health food,” further cementing their reputation as an inexpensive, nutritious source of protein.
Unlike other food manufacturers, I’m also not overly concerned about the threat to Cal-Maine from weight loss drugs like GLP-1s. It is known that users of these drugs have to be careful with protein consumption so as not to lose muscle mass, which is good news for a maker of a popular protein source like Cal-Maine. All of these factors put Cal-Maine in a strong position over the long term.
Many consumers prefer cage-free eggs, and Cal-Maine also notes that ten states have mandated cage-free egg production by 2030. However, Cal-Maine is already positioning itself for this changing environment by allocating capital to ramping up its own caged eggs. free production and acquiring cage-free producers.
Even with its strong performance over the past twelve months, Cal-Maine looks like an attractive buying opportunity because its shares are still quite cheap. In fact, with a valuation of just 12.1 times consensus 2025 earnings estimates, Cal-Maine trades at barely half the multiple of the broader market. The S&P500 (SPX) currently trades for 25.8 times earnings, nearly double the valuation that Cal-Maine enjoys.
Not only is Cal-Maine cheap, but it’s also an intriguing dividend stock with an attractive forward yield of 3.8%. This means that Cal-Maine’s dividend yield is about three times that of the S&P 500, which currently yields just 1.2%.
It’s worth noting that Cal-Maine has a variable dividend policy designed to optimize shareholder returns throughout economic cycles and preserve capital. In quarters when the company reports net profits, the policy is to distribute one-third of these earnings to shareholders in the form of dividends. So the dividend can vary widely from quarter to quarter and year to year, depending on the company’s performance.
Therefore, Cal-Maine isn’t necessarily the textbook ‘Dividend King’ with a 50-year track record of paying and increasing its dividend payments, but it can pay out some very nice quarterly dividends when earnings are strong . For example, the company just paid an attractive $1.02 dividend this past quarter.
As for Wall Street, CALM earns a consensus rating of Moderate Sell, based on zero Buys, one Hold, and one Sell rating assigned in the last three months. The average CALM stock price target of 82.00 implies 20.8% downside potential from current levels.
View more CALM analyst ratings
Cal-Maine has flown under the radar of many investors this year despite its strong performance. The good news is that even after an 80% rise, the stock still looks like an attractive investment opportunity based on its cheap valuation, as shares are trading at around half the market price.
I am bullish on Cal-Maine based on this cheap multiple, its strength in the current environment where consumers are challenged by inflation and looking for cheap and nutritious choices, its favorable long-term outlook and its attractive dividend policy, which leads to substantial dividend payouts during periods of strong performance.
