1. Cal-Maine Foods, Inc. Manik Malhotra Quintus Yang
30th March, 2017

2. AGENDA Current Holding Company Overview
Macroeconomic Overview and Drivers
Industry Overview and Analysis
Financial Analysis
DCF Valuation
Comparable Valuation
Technical Analysis
Further Market Prospects
Recommendation

3. CURRENT HOLDING COMPANY OVERVIEW MACROECONOMIC OVERVIEW INDUSTRY OVERVIEW

4. CURRENT HOLDING Historical Transactions and Values Dividends Received
12/16/2015 – Bought 100 at $47.68
Current Price (27th March) – $37.50
Dividends Received
1/25/2016 – $0.751/share
4/25/2016 – $0.441/share
Realized Return
Return from Dividends – 1.192/47.68 = 2.5%
Unrealized Return
Market Return – ( )/47.68 = %
Holding Period Return = %
Source: Google Finance:
As of 27th March, 2017

5. CURRENT HOLDING Stock price change from December 2015
52 Week Range – $35.10 to $55.16
Market Cap – $1.82 billion
Dividend Yield – 2.50%
TTM P/E –
Source:
Google Finance:

6. 88% Customers are Retailers
COMPANY OVERVIEW
Business Overview
Largest producer and marketer of shell eggs in US
Founded in 1957 in Jackson, Mississippi
Publicly traded on NASDAQ under symbol “CALM” in 1996
Fully integrated operations
Production, grading, packaging, marketing and distribution
FY 2016 Result:
U.S. fresh shell egg market share - 23 percent
Record sales of $1.9 billion in FY 2016 (21% increase)
Geographic Presence
Customers
% FY 2016 Sales
Walmart and Sam’s Club
28.9%
H.E. Butt and Co.
9.1%
CCF Brands
8.3%
Publix Super Markets
8.2%
Top 10 Customers
70.6%
88% Customers are Retailers
Source: Cal Maine Investor Relations

7. Non-specialty shell eggs
PRODUCTS AND BRANDS
Products
Descriptions
Non-specialty shell eggs
Normal eggs
Price is cyclical
Inelasticity of demand, small increases in production or decreases in demand can have a large adverse effect on prices
Specialty Shell Eggs
Nutritionally enhanced, cage free, organic and brown eggs
Growing Segment of the market
Price is non-cyclical and generally higher
Speciality Eggs Brands – Egg-Lands Best, Land’O’Lakes, Farmhouse, 4-Grain
Egg Products
Shell eggs broken and sold in liquid, frozen and dried form
2016 Revenue Breakdown
2015 Revenue Breakdown
Source: Cal Maine Investor Relations

8. MACROECONOMIC OVERVIEW
Population Growth
Egg Consumption per Capita
Non-Specialty Shell Egg Prices
Feed Cost
Source: IBISworld for Population Growth
USDA reports for Shell Egg Prices
Investor Relation Reports for egg consumption and feed cost data

9. MACROECONOMIC OVERVIEW
EGG PRICES
NET INCOME
Source: 10 K Reports

10. Threat of Substitute Products Bargaining Power of Suppliers
INDUSTRY OVERVIEW
PORTER’S FIVE FORCES
Competitive Rivalry
10 largest producers own 50% of industry layers
Top 3 producers have 40-45% market share
56 producers have a flock of more than 1 million, represented 96% of industry layers
Competitive Rivalry
HIGH
Threat of New Entrants
Moderate
Bargaining Power of Customers
Threat of Substitute Products
Low
Bargaining Power of Suppliers
Threat of New Entrants
Entrants have to follow FDA regulations
Players exist with low capacity
Threat of Substitute Products
Egg is considered the cheapest protein product
Egg Consumption per capita is relatively stable
Bargaining Power of Suppliers
Prices of Soybean & Corn controlled through index
Bargaining Power of Buyers
Buyers can easily shift to other egg brands

11. MANAGEMENT TEAM Fred R Adams Jr Adolphus B Baker Sherman Miller
Founder and Chairman Emeritus
Adolphus B Baker
President, CEO and Chairman
Sherman Miller
Vice President, COO and Director
Chairman of Board from to 2012
CEO since 1969 to 2010
Also served as the chairman of National Egg Company and United Egg Producers
Chairman of Board since 2012
President and CEO since 2010
Mr. Adams son-in-law
Member of board since 2012
Chief Operations /officer since 2011
Graduated in 1997 in poultry science and directly joined Cal-Maine
Adams family owns 31% of the company and has 66% of voting rights
Management team has consistent vision of the firm’s growing strategy
Source: 10 K Reports

12. GROWTH STRATEGY Enhance production capacity and efficiency
Completed 20 acquisitions since 1989
Recent news: Acquired happy hen farms in February
Acquire existing production and processing facilities
Over $86 million of capital projects currently underway which will increase Cage-Free and Organic capacity
Updated the facilities to be more efficient, mechanical and less labor-intensive
Enhance production capacity and efficiency
Offer nutritionally enhanced eggs, cage-free and organic eggs to meet consumer demand in rapidly growing segment
Benefit from higher and less cyclical selling price
Increase value-added specialty egg business
Source: 10 K Reports

13. COMPANY - SWOT ANALYSIS
Strengths
1) Largest egg producer in US
2) Proven Management Team
3) Efficient operations
Weakness
1) Dependence on Egg Prices
2) Dependence on Feed Cost
3) High competition
Opportunities
1) Increasing capacity through acquisitions to control supply
2) Growing market for high-margin specialty eggs
Threats
1) Breakout of Avian Influenza
2) Acquisition-related litigations
3) Loss of major customer

14. FINACIAL ANALYSIS DCF VALUATION COMPARABLE ANALYSIS TECHNICAL ANALYSIS FURTHER MARKET PROSPECTS RECOMMENDATION

15. FINACIAL ANALYSIS Cal-Maine Foods Profitability Ratios
Liquidity Ratios
Greenblatt Ratios
Turnover Ratios

16. COMPARABLE COMPANIES B&G Foods Sanderson Farms Dean Foods Tyson Foods
Manufactures sells and distributes a range of self-stable and frozen food products
B&G Foods
An integrated poultry processing company that produces, processes, markets and distributes fresh, frozen and prepared chicken products in US
Sanderson Farms
A food and beverage company that processes and distributes milk and other dairy products in the US
Dean Foods
It operates in 4 segments of chicken, beef, pork and prepared food. The company raises and processes chicken into various products
Tyson Foods
Source: Capital IQ

17. FINACIAL ANALYSIS Cal-Maine Foods w.r.t Comparable Companies
Gross Margin
Net Margin
BV/Share
Debt/Assets

18. FINANCIAL ANALYSIS Factors of Moat Intangible Assets Switching Costs
Network
Effects
Cost
Advantage
Efficient
Scale
The company has “Narrow” Moat on account of the following factors:
None of the speciality egg brands have a strong recall value
No switching costs associated for customers
Having the largest capacity is a source of moat but there are competitive pressures
Upgrading its infrastructure regularly to ensure cost reduction but ultimately the fluctuations in egg prices can erode all developments
Way too many competitors in this field
Source: 10 K Reports
MorningStar Economic Moat

19. DCF VALUATION Assumptions – Revenues & Cost of Sales
Source: 10 K Reports

20. DCF VALUATION
Assumptions – Discount Rate

21. DCF VALUATION Valuation – Perpetuity Growth Method
Discount Rate – 13.31%
Terminal Discount Rate – 11.30%
Terminal Growth Rate – 3.00%

22. DCF VALUATION
Sensitivity Analysis

23. The price range using comparable analysis is between $35.5 and $37.4
COMPARABLE VALUATION
The price range using comparable analysis is between $35.5 and $37.4
Source: Capital IQ

24. TECHNICAL ANALYSIS The moving averages are on a downward trend.
Source:

25. FURTHER MARKET PROSPECTS
The company’s stock price remained constant with the announcement of third quarter results
For the last 2 months the market closing price of stock has hovered between 37 and 39.8
We believe that the stock price will further fall down with fourth quarter results that will be announced in June, since the egg prices are still at a low and company will have an overall negative year
With time, the prices of egg will rebound back as the market will reach a price equilibrium since smaller egg producers will not be able to sustain at such price levels
Also Cal-Maine completed 2 acquisitions last year and it is the right time to acquire companies since they will be available at cheaper prices
The above two factors and increase in specialty egg business with time will help in rebounding the stock price once the conditions stabilize in this industry
Overall, the company is a long term growth stock

26. Specialty Egg Business
RECOMMENDATION
Consumer Base
Eggs will always be consumed by the people and the demand will always increase until there is a substitute for egg
Management Team
The management team has been stable and they are the majority shareholders and will work for the benefit of the shareholders
Specialty Egg Business
It’s just been 1.25 years since we have held this stock. With more time there will be an increase in specialty egg business which will reduce cyclicity and increase revenue

27. Thank You