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CALM- Oymelets!

June 18, 2016 – Comments (0) | RELATED TICKERS: CALM

Perhaps chicken is soon to become cheep (pun). There is in fact a glut of eggs; methinks due to the strong dollar which equals poor exports.

Over the past six weeks, egg prices have averaged 43¢/dozen. When were they last so low? Never...or at least never in the ten years that my records go back. It gets uglier; they were 38¢ for three of the past four weeks, before popping all the way up to 50¢ this week. For further context, the next lowest price in my records was 60¢ in June of 2009. These are prices for large eggs, which is where most of the action is. Medium eggs were 28¢/dozen. I doubt that that'll pay for the ink on the carton.

Here, let's interject the average egg price for CALM Q4, to be reported some time in July:
in 2015, March through May, the average price was $1.48
in 2016, March through May, the average price was 69¢
Can you say "ouch?"

What does this mean for CALM profits? It's really hard to say since CALM has been building the value-added business of cage free and Egg-lands. It should allow us to get a pretty clear picture of just how dynamic the value added portion on the business has become. If CALM can pull off a profit in this environment, they will have clearly left the commodity side of the business behind. I personally don't think that is likely, but hey, you never know.

On a brighter note, it's possible that CALM can pick up some new business from Costco, which stands behind their assertion that Hillandale brand eggs are good. If you haven't seen the latest undercover video of conditions at a Hillandale farm, check it out. Gross. Hillandale is owned by Jack DeCoster, who could reasonably be characterized as an "egg-criminal," having been previously convicted of same. He says he has nothing to do with Hillandale, but that's what we'd expect an egg-criminal to say. Costco should leave them like a Ukrainian mail order bridegroom. I think CALM is the only outfit who might be able to manage Costco demands.

All y'all enjoy the fruits of the situation, while it lasts!  [more]

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Eggs on a Napkin

November 21, 2015 – Comments (0) | RELATED TICKERS: CALM

Hello CALM fans and non-fans alike:

Just to keep you up on what's up with our friends in the coop...egg prices are returning to the three year trendline. They turned up slightly ahead of schedule, but are otherwise parallel.

I'm going to sketch out a back of the napkin suggestion for earnings, (rounding to nickels along the way)...

First, our favorite gang of know-nothings (analysts) are predicting earnings of $3.00/share. I will posit without reservation that EPS of $3 are entirely unlikely.

In this as-yet-unreported Q4 (ending November 30, reporting in Dec.):
The first two months, eggs were at what I'll call "Stupid High prices" (SH), with one month at more "Normal Prices" (NP). Additionally, the middle month was trending toward normal, with the 3rd remaining a little higher than normal.

For estimating SH, I'll use last quarter earnings of $3.00 (three full months of SH prices) as a benchmark; $1/month EPS.  

For estimating NP, earnings for the quarter a year ago were 75¢; so 25¢/month EPS.

This suggests roughly $2.25 EPS for Q4 (2x SH + 1x NP)...nowhere near $3. Giving myself maximum mushiness, plus about 10% organic EPS growth (which I'd expect), I'm going to suggest an earnings range of $2.25-$2.50. Of course it does not incorporate anything that I can't really know (which is almost everything, actually).

At a current P/E multiple of 10-ish and TTM EPS of $6.50, we get a stock price of $65. That would be my short term high target.

In the new fiscal year (2016) which begins in December:
With 10% growth over Q1 2015, TTM will increase to $6.60; a $66 stock at a P/E of 10. If irrational optimism expands the multiple to (a very possible) 12x, that puts it at $78. 

So bearing in mind that earnings are drifting back to NP:
a 10% increase in EPS for Q1 2016 are likely, but a repeat of Q3 and Q4 are entirely unlikely. Remember that Q2/2015 had two months NP and one month SH, so Q2 is a crap shoot...but rest assured that the "market" won't remember facts that it never recognized in the first place. I doubt earnings will grow YoY for 2nd quarter.

If CALM were to maintain a 10% earnings growth in the core business:
FY 2014 earnings were $2.90 so x 1.1 = 3.20 EPS. At the 10 multiple, that's $32. There is your risk/reward scenario;
a price range of $32-$78.  
And one can scarce imagine the market reaction when Q4 earnings come in 50¢ below analysts estimates! Those of you who are traders may find this a compelling situation.

What am I doing? I have a sell order at $68 for the entirety of my holdings, but may adjust to a lower number ($65-ish) as the earnings announcement nears. My blended share cost is $24. 

If you want to follow along, http://www.ams.usda.gov/mnreports/pybshellegg.pdf
The chart at the bottom of page one is all we really can or need to know. 

Happiest of Thanksgivings to you all.

   [more]

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Cal-Maine (CALM); Hitting its stride

December 06, 2014 – Comments (0) | RELATED TICKERS: CALM

To see more discussion, check out the Value Hounds discussion board:http://boards.fool.com/calm-hitting-stride-31530191.aspx   [more]

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A Tandy Build Your Own 3-D Printer at Radio Shack

January 12, 2014 – Comments (0) | RELATED TICKERS: RSHCQ

From our discussion on the Value Hounds discussion board...looking for a broader conversation.  I appreciate any comments.   [more]

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