Cal-Maine Foods (CALM) has an attractive valuation and is looking to stretch its positive earnings surprise streak to three. The stock is a Zacks #1 Rank (Strong Buy).
Company Description
Cal-Maine Foods, Inc. is engaged in the production, cleaning, grading, and packaging of fresh shell eggs for sale to shell egg retailers. The company is the one of the largest producers and distributors of fresh shell eggs in the United States. The company markets its eggs primarily in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States.
Feast or Famine for Earnings
Analysts have not had any free lunches courtesy of CALM, as they have seen estimates range from a loss of six cents in the August 2010 quarter to as high as $1.02 in EPS in the February 2011 quarter. Of the last six quarters, the company has racked up four beats and two misses and all reports are double digit surprises.
The two misses, occurring in February 2011 and May 2011, were 12% and 31% negative surprises. The beats are just as large, if not larger. The August 2010 quarter was 250% ahead of expectations and the average of the three other beats was 27%.
Stock Moves On Earnings
Common sense would tell you that these large beats and or misses would result in big moves for the stock. That logic would be wrong. Only one time did the stock move by more than 7%, and it was as a result of the 250% beat and the stock went down following that positive report.
Most Recent Beat
The company reported is November 2011 quarter late in December and posted revenue of $290 million, up from $235 million in the year ago period. Earnings per share of $0.97 were 40% ahead of the Zacks Consensus Estimate and up from $0.63 in the same quarter last year. The company is expected to post revenue of $309 million and EPS of $1.14 for the February 2012 quarter later this month.
Valuation
The reasonable multiples that CALM carries are slightly above the industry average for most metrics. At 15x trailing earnings, CALM trades at a premium to the industry average of 11.7x. Similarly the stock carries a 13x multiple versus a 10x industry average multiple for forward earnings. Price to book is in line with the industry and price to sales for CALM again shows a very slight premium.
The Chart
A look at the shows us just what an aggressive growth stock investor is looking for. The steady upward trend that the stock has exhibited since October is due to rising earnings and two back to back positive earnings surprises. Should the surprise streak growth to three, then this stock is primed for a big move due to its low valuation.
Brian Bolan is an Aggressive Growth Stock Strategist for Zacks.com.
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