Cal-Maine Foods Inc. (NASDAQ: CALM), the largest egg producer in the U.S., just reported a significant earnings beat, and I believe this momentum could lead to a substantial increase in both its stock price and dividend payout—potentially by 50% or more.
Let’s break down the key drivers behind my outlook.
Strong Sales and Income Surge
According to a recent report by MarketWatch, Cal-Maine’s first-quarter sales for fiscal 2025 soared more than 70% year-over-year, reaching $786 million, significantly surpassing market expectations of $705 million. The company’s net income also skyrocketed to $150 million, or $3.06 per share, compared to just $926,000 (2 cents per share) in the same quarter last year. That’s an impressive leap in profitability, and it’s largely driven by two major factors: rising egg prices and declining production costs.
The net average selling price of a dozen eggs jumped from $1.589 a year ago to $2.392 this quarter, reflecting both inflationary pressures and reduced supply due to ongoing avian influenza outbreaks. Lower costs for key feed ingredients further boosted Cal-Maine’s bottom line, and despite recent weather disruptions from Hurricane Helene, the company assured that it does not expect any material impact on its operations.
The Case for a 50% Stock Price Increase
With such a significant earnings beat, it’s no surprise that Cal-Maine’s stock has already gained around 34% this year, outperforming the S&P 500’s 20% rise. But given the strong earnings momentum, I believe there’s more room for growth. Let’s consider a few factors supporting the potential for an additional 50% increase in the stock price:
Egg Price Tailwinds: The ongoing avian flu outbreak has tightened U.S. egg supplies, pushing up prices significantly. As long as the egg supply remains constrained, Cal-Maine stands to benefit from these elevated prices. Even with future price corrections, current supply-demand imbalances suggest that higher prices are here to stay in the short to medium term.
Operational Efficiency: Lower feed costs played a significant role in Cal-Maine’s improved profitability this quarter, and the company seems well-positioned to continue benefiting from cost efficiencies. As long as key inputs like feed remain affordable, Cal-Maine should be able to maintain its impressive profit margins.
Resilient Business Model: Despite weather disruptions like Hurricane Helene, Cal-Maine has proven its ability to remain resilient. Its strategic focus on the Southeastern U.S. and its diversified network of contract farmers provides a stable production base, even in the face of adverse conditions.
Forward P/E and Growth Potential: With earnings at $3.06 per share for the quarter and the stock currently trading at a forward price-to-earnings ratio that’s relatively modest given its growth trajectory, the stock is likely undervalued. If earnings growth continues at this pace, it’s entirely plausible that Cal-Maine’s stock could climb another 50%.
Dividend Growth Potential
Cal-Maine is known for its variable dividend policy, which ties payouts directly to earnings performance. Given that the company posted a remarkable increase in profitability, I fully expect that dividend payouts will rise proportionately. In the last quarter, Cal-Maine paid a substantial dividend, but with earnings increasing more than tenfold year-over-year, I’m predicting a significant hike in their next dividend payout.
Considering their variable dividend model and strong earnings, it’s entirely possible we could see a 50% or more increase in dividends moving forward. Investors should also keep in mind that Cal-Maine has no long-term debt, meaning it has the financial flexibility to reward shareholders while still reinvesting in its business.
Conclusion: A Golden Opportunity
Cal-Maine’s recent earnings beat, driven by higher egg prices and operational efficiencies, positions the company for continued growth in both stock price and dividends. With egg prices unlikely to drop in the near term and the company maintaining solid margins, I believe Cal-Maine’s stock has the potential to increase by at least 50%. Additionally, given the company’s variable dividend policy, shareholders can expect to see substantial increases in dividend payouts as earnings continue to grow.
If you’re looking for a solid investment with both capital appreciation and income potential, Cal-Maine could be your golden egg.
Find more details:
https://www.calmainefoods.com/investor-overview
