Maintaining Sell Rating on Cal-Maine Foods Amid Production Costs and Market Challenges

In a report released yesterday, Adam Samuelson from Goldman Sachs reiterated a Sell rating on Cal-Maine Foods (CALM – Research Report), with a price target of $47.00.

Adam Samuelson has given his Sell rating due to a combination of factors impacting Cal-Maine Foods’ financial outlook. Although the company’s earnings per share were slightly higher than the forecast, the overall performance was consistent with expectations. The increase in revenue was driven by more units sold and stable average selling prices, yet this was tempered by the cost implications of purchasing additional eggs due to lower production levels. The discrepancy between expected and actual production volumes resulted in gross profit falling short of projections, driven principally by the increased costs associated with external egg purchases.
Furthermore, Samuelson points out that the egg market is expected to encounter challenges with demand expected to decline after the Easter period, moving into the summer. This anticipated decrease in demand, paired with ongoing supply uncertainties due to the Highly Pathogenic Avian Influenza (HPAI), poses risks to the company’s earnings stability. Despite Cal-Maine Foods’ considerable net cash position, the firm’s capacity to generate interest income from these reserves remains below the company’s cost of equity, which does not justify full capitalization of the HPAI-induced supply shortfalls on pricing and earnings. Therefore, maintaining the Sell rating, Samuelson reaffirms a price target that reflects these concerns.

Samuelson covers the Consumer Defensive sector, focusing on stocks such as McCormick & Company, Cal-Maine Foods, and Darling Ingredients. According to TipRanks, Samuelson has an average return of 3.5% and a 48.63% success rate on recommended stocks.

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Cal-Maine Foods (CALM) Company Description:

Cal-Maine Foods, Inc. engages in the production, grading, packing, marketing, and distribution of fresh shell eggs. The firm operates farms, processing plants, hatcheries, feed mills, warehouses, offices and other properties. It markets shell eggs to national and regional grocery store chains, club stores, foodservice distributors, and egg product manufacturers. The company was founded by Fred R. Adams Jr. in 1957 and is headquartered in Jackson, MS.