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Goldman Neutral On A Pure-Play Table Egg Producer: Cal-Maine Foods

Cal-Maine's No Bad Egg: Goldman Initiates At Neutral|NASDAQ: CALM

Goldman Sachs’ Adam Samuelson views Cal-Maine Foods Inc CALM 3.8%, a pure play table egg producer, as a “a key industry consolidator” with a solid M&A track record.

Samuelson initiated coverage of the company with a Neutral rating and price target of $37.

Industry Shift

“While we are intrigued by near-term cyclical recovery as industry supply should slow post-November, this appears fairly reflected in consensus and valuation,” the analyst mentioned.

However, Samuelson expressed caution for the medium term, given the industry shift to “cage-free production.”

The analyst expressed concern regarding both Cal-Maine Foods’ and the industry’s ability to sustain premium pricing in order to mitigate the higher capital intensity and operating costs.

“This transition clouds CALM’s normalized earnings potential and we prefer to stay on the sidelines,” Samuelson stated.

In Other News

The company had reported its quarterly results at the end of September, with lower than expected EPS and a 60.7 percent decline in sales.

More recently, Cal-Maine Foods had announced on November 2 that it had closed the acquisition of almost all the assets of Foodonics International, Inc., a privately held company that does business as Dixie Egg.

On the other hand, Samuelson expects S/D to turn more positive into early 2017, “with egg layers poised to decline from December/January onwards, and the lagged response to negative margins for much of 2H16.”

DateFirmActionFromTo
Nov 2016Goldman SachsInitiates Coverage OnNeutral
Jun 2016BB&T CapitalUpgradesUnderweightHold
May 2016DA DavidsonDowngradesNeutralUnderperform

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