Cal-Maine Foods (CALM), mcap=$2.75bn, price $56.15 vs $58.00

CALM pitch:
– The largest fresh egg producer.
– Cyclical over-earner with a burning platform due to cage-free transition.
– The market exaggerates the company’s ability to sustain exceedingly high cash flows (8x normal on a quarterly basis).
– CALM is expected to re-rate over the next 18 months as the US egg-laying flock recovers from highly pathogenic avian influenza-linked excess mortality.
– Egg prices are set to normalize by the end of 2023, but COGS will remain elevated.
– In addition to this, the necessary investments to transition to cage-free, demanded by US consumers and numerous state legislatures, will cause BV erosion in the coming years.
– Short interest is at 15%, but otherwise limited risks to shorting.

CALM valuation:
– At 12x FY24 NOPAT of $55m, fair value stands at $22.6/share.
– Similar target using BV and DCF valuation models.
– Bull case (on unadjusted NTBV) is at 20% upside, which is manageable.

Exp. gain: 60% to $20/share in 18 months.

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