Egg Price Rally Is A Boon For Cal-Maine

Reflecting an improving egg commodity cycle, Stephens upgraded shares of Cal-Maine Foods Inc (NASDAQ:CALM). The firm said the improvement is characterized by below-par production, stronger-than-expected demand and increasing export opportunities.

As such, the firm upgraded the shares of the company from Equal-Weight to Overweight and increased the price target from $35 to $50.

At time of writing, Cal-Maine shares were rallying 6.18 percent to $44.22.

Citing data from the USDA, analyst Farha Aslam said Southeast egg prices were $1.45 per dozen in the most recent week, up 151.3 percent from last year, with the comparisons being easy. The analyst noted that egg prices have rallied throughout the summer, demonstrating a more balanced supply-demand environment.

As of September 2017, the analyst noted that the egg laying flock was 312 million layers, up 0.5 percent year over year but below the peak levels of 318 million layers. This, according to the analyst, is due to the industry cutting production due to prices languishing at historical lows in early spring.

Aslam said the improved commodity dynamics resulted in higher egg prices and greater earnings.

With improving egg fundamentals driving better prices compared to last year, Stephens noted that sales rose 9.6 percent to $262.8 million. The firm noted that the average selling price for all eggs was up 6.8 percent to $1.02 per dozen.

The firm said it believes the company is benefiting from an improved pricing environment for commodity eggs and benign feed costs. Additionally, the firm noted that Cal-Maine is striving to trim costs by closing less productive farms and ramping production at the recently completed new egg facilities.

Stephens also said it would hold a conference call with Cal-Maine's cheif financial officer, Tim Dawson, Thursday at 4 p.m. ET, at which time it plans to discuss the current pricing environment, opportunities to improve the mix, the outlook for grain prices and M&A.