Wednesday, July 13, 2016

Watch List: Cal-Maine Foods Inc.

If you haven't heard of them, Cal-Maine Foods Inc. (CALM) is in the egg business. They produce, sell, and distribute the eggs in a variety of different forms. A company has to be able to do so in this day in age. That means distributing cage free, organic, brown, and other forms of eggs to make sure that all market points are hit for the different customers that desire eggs. They do so under the names of Egg-Land's Best, Land O Lake, Farmhouse, and 4-Grain. Although the most recent review by analysts suggests a hold on the stock, I instead believe that the stock is a hard buy. Here's why:

First off, the current price is right at the bottom of the 52-week low. It currently trades for $45.53/share which is right above the 52-week low of $39.60. The current price would yield a 3.86% dividend with a very good margin for safety as the beta is a comfortable 0.84. As this is the case, there should not be much movement coming from it. Couple this with the very safe 32.06% payout ratio and you've got a dividend payer that is hardly in trouble of cutting their dividend.

Although the P/E ratio is nothing to be desired (6.08), the company does seem to have a very good handle on their finances which suggests that it should have a great amount of longevity. The company has a total cash balance of $387.05M and only has a current debt of 27.24M. This amount of debt is very easily managed by their current cash at hand. It's a huge factor for me when I am choosing stocks as one hardly sees companies with little/no debt go under. It just doesn't happen unless the product is completely cut off from use and consumers turn their heads away completely. As I don't see that happening anytime soon, I feel that this is a major selling point for this stock.

In addition, the company has a low PEG ratio of only 0.20 and a stable profit margin of 18.05%. Although I don't put too much weight on PEG as it is mostly a made up number to give you an idea of the future based on past earnings potential, it still shows that one can buy into the stock at a bargin compared to what they are estimated to earn in the future. Couple that with the profit margins that coast around 18% and you've got a very stable business.

All of these factors culminate together to equal a strong buy in my opinion. It's not the most fancy or interesting stock but then again, some of the greatest stocks such as Emerson Electric (EMR) aren't either. It's a business and as long as it is being managed effectively and shows strong metrics, it should be seen as a powerhouse stronghold stock for dividend investors.

Now it's your turn. What do you think of Cal-Maine Foods? Have you got your eye on it as well? Why or why not?


  1. An interesting pick. I was looking at CALM but I just couldn't get over the choppy dividend record. As you mention though there's a lot to like here. Best of luck.

    1. You're right. It's very choppy in the past but over all the stock is a great buy. If you can deal with the sometimes inconsistent dividend at least.

  2. DR, CALM pays 33% of its quarterly earnings in dividends thus the fluctuations. Last year the bird flu killed most of the chickens in the midwest. Most of CALM's farms are in the south. With less supply they could charge more thus the strange P/E ratio. This year they avoided the bird flu issues.

    I'm not saying you should buy it but these are things to consider. I'm thinking of buying CALM myself but I can't determine when. Also this is the reason why the market has been punishing CALM. Egg prices dropped compared to last years