1. Cal-Maine Foods, Inc. Analysts: Yujiang (Walter) Chen Amey P Dargude
(NASDAQ:CALM)
Analysts:
Yujiang (Walter) Chen
Amey P Dargude
Rahul Gohil
Yue (Benjamin) Xu
Yuqing Zhang
Presented on 14 Dec, 2015

2. Agenda Screen Criteria Company Overview
Industry and Macroeconomics Overview
Technical Analysis
Stock Market Prospects
Comparable Analysis
Financial Analysis
Financial Projection
Valuation
Recommendation

3. Screening Criteria Cal-Maine Foods Piotroski Score Diversification = 7
Altman Z = 8.11
Current ratio > 2
Market Cap < 3 Bn
Diversification

4. CM Business Overview Founded in 1957 in Mississippi
Largest producer and marketer of shell eggs in the United States
Since 1989, completed 18 acquisitions
Sell most of the eggs in southwesten, mid-westen and mid-Atlantic regions.
Production, grading, packaging, marketing and distribution of shell eggs CM
Feed mills
Hatch
Breeder
Pullet growing
Egg production
Processing and packing
Sales and distribution
Grocery store, club stores, foodservice distributors, egg product customers
Own state-of-the-art breeder , hatchery and laying facilities
Modern “in-line” facilities to gather, grade and package eggs
Produce 75% of shell eggs sold and purchase 25% from outside producers
CALM K pg. 3-6, , CALM Investor Presentation Nov 2015, pg.8

5. Non-specialty shell eggs
Product
Major Products
Inelasticity of demand, small increases in production or decreases in demand can have a large adverse effect on prices
Cyclical
Non-specialty shell eggs
One of the largest producers and marketers of value-added specialty shell eggs
Include nutritionally enhanced, cage free, organic and brown eggs
Higher price, less cyclical
Sell Specialty shell eggs under four brand: Egg-Land’s Best®, Land O’ Lake s®, Farmhouse®, and 4-Grain®
Specialty shell eggs
Broken shell eggs and sold in liquid, frozen, or dried form
Egg products
CALM K pg. 6-7

6. Revenue Breakdown
Net sales ($ in millions) & Total shell eggs sold (in millions of dozens)
Urner-Barry Egg Market Price (per dozen eggs)
2015 Product Sales Breakdown
FY 2015 sold million dozen eggs, represent 23% of domestic shell egg consumptions
Sell the majority of non-specialty shell eggs at prices related to Urner Barry Market Quotations or formulas related to costs of production which include the cost of corn and soybean meal
Feed is a primary cost component, ranging from 62% to 69% of total production cost
CALM K pg. 3-6, 22

7. Growth Strategy Enhance production capacity and efficiency
Pursue acquisitions of existing shell egg production and processing facilities
Enhance production capacity and efficiency
Increase value-added specialty egg business
Fiscal year
Company
Acquisition payments ($ in thousands)
Benefits
2014
Delta Egg Farm, LLC
$1,700
1.2 million hen production capacity and feed Mill, 0.4 million organic egg production capacity
2012
Maxim Productions Co. Inc.
$6,490
Feed mill, 3.5 million hens production and pullet grow out capacity
Pilgrim" Pride Corporation
$1,630
1.4 million hen production capacity
CALM K pg. 46, CALM Investor Presentation Nov 2015, pg.18

8. S W O T SWOT Analysis Positive Negative Strengths Weaknesses
1) Economics of scale
2) Highest gross margin, profit margin, highest liquidity and lowest debt ratio.
1) Acquisition strategy is unsustainable; 2)Legal problems. S W
Strengths
Weaknesses
1) Growing demand on specialty shell eggs.
2) Technology innovation
1)Stronger regulations.
2) Customers’ preference may change. O T
Opportunities
Threats
Yahoo Finance, IBIS World

9. Industry Analysis Porter’s Five Forces
Rivalry among Existing Competitors
(High)
A medium level of concentration
Eggs are largely homogenous
Competition by low prices
Mature industry, experiencing consolidation
Threat of new Entrants
(Moderate)
The level of capital intensity is high
Egg production regulation is strong
Five Force
Supplier Bargaining Power (Moderate)
The Corn, Wheat and Soybean Wholesaling industry
Moderate industry concentration;
Differentiation is low and competition is high
Threat from substitutes (Moderate)
A world leader in egg-production technology and processes
The price of meats is expected to grow faster than the price of eggs in 2016
Buyer’s Bargaining Power (Moderate)
The retail sector accounts for 45.0% of revenue in Highly competitive
IBISWorld, Egg Demand Dashboard (American Egg Board)

10. Macro Economics Analysis
US Household spends 6.5% of “Meat & Eggs Spending” on Eggs
Up 54% since 2003
Shifting from beef
High relative cost per pound
Rising demand for low calorie foods
US natural and organic F&B sales to rise
Account for about 9% of total US F&B sales, up from 4% in 2005
Increasing consumer preferences for healthy foods & ingredient transparency
Egg Demand Dashboard (American Egg Board), Bloomberg

11. Macro Economics Analysis (cont’d)
Egg prices have increased historically, but remain volatile.
Feed prices are volatile but are expected to be close to this level till  
CALM Investor Presentation Nov 2015

12. Technical Analysis
Yahoo Finance

13. Stock Market Prospects
Yahoo Finance

14. Financial Analysis Liquidity Ratio Profitability Ratio Analysis
Leverage Ratio Analysis
Favorable liquidity
Decreasing leverage
Steadily increasing operating margin
CALM 10K (2011 – 2015)

15. Financial Analysis （cont’d)
Activity Ratio
Greenblatt Analysis
Du Pond Analysis
Steady activity ratios
Changes in interest burden, becoming steady on 2012 onwards
Increasing ROIC
Earning yield from Greenblatt analysis seems to recover and grow
CALM 10K (2011 – 2015)

16. Market Comparable Tyson Foods (TSN)
Founded in 1935 and Headquartered in Springdale, Arkansas, it operates through four segments: Chicken, Beef, Pork, and Prepared Foods and fabricates them into value-added products.
Marketing channel through its sales staff to grocery retailers, grocery wholesalers, meat distributors, industrial food processing companies, chain restaurants or their distributors, and domestic distributors, as well as through independent brokers and trading companies.
Sanderson Farms (SAFM)
Founded in 1947 and headquartered in Laurel, Mississippi, it produces, processes, markets, and distributes fresh, frozen, and prepared chicken products in the United States
Using the brand name to sell the products to retailers, distributors, and casual dining operators in the southeastern, southwestern, northeastern, and western United States, as well as to customers who resell frozen chicken in the export markets.
Pilgrim’s Pride Corporation (PPC)
Founded in 1946 and is headquartered in Greeley, Colorado, it engages in the production, processing, marketing, and distribution of fresh, frozen, and value-added chicken products.
Sells its products to food service market, including chain restaurants, food processors, broad-line distributors, and other institutions; and retail market customers that primarily include grocery store chains, wholesale clubs, and other retail distributors.
Yahoo Finance, Capital IQ

17. Financial Analysis for Market Comparable
Current Ratio
Operating Margin
Debt-to-Equity Ratio Ratio
CALM has the best liquidity, and higher operating margin
Low debt leverage, meaning there is sufficient internal cash flow to support the future development

18. Target Price (Forward P/E) Target Price (Trailing P/E)
Comparable Valuation
Ticker
Forward P/E
P/BV
P/CF
Trailing P/E
Weight
TSN
17.82x
1.62x
6.10x
17.43x
25%
SAFM
12.32x
1.86x
5.44x
6.06x
50%
PPC
10.69x
2.54x
5.23x
7.43x
CALM
13.29x
1.97x
5.55x
9.25x
Items
Price Multiples
Weight
EPS (estimated in 2016)
Target Price (Forward P/E)
$4.44
$65.02
61%
EPS (2015)
Target Price (Trailing P/E)
$3.35
$30.98
13%
OCF per share (2015)
Target Price (P/CF)
$4.04
$24.70
Book Value per share (2015)
Target Price (P/BV)
$14.61
$31.70
Final Target Price
$51.02
Upside Potential
9.66%
Note: all the stock prices are day closed on Dec. 11, 2015
Yahoo Finance, Capital IQ

19. Financial Projection ASSUMPTION 2014A 2015A 2016F 2017F 2018F 2019F
Plan to increase the sales of specialty eggs, facing more demand from market. Also, specialty eggs have higher prices and less fluctuation
ASSUMPTION
2014A
2015A
2016F
2017F
2018F
2019F
2020F
Income Statement
Non-specialty shell egg sales
990,073.00
1,059,070.00
1,116,989.27
1,166,906.18
1,207,384.75
1,237,193.64
1,255,366.53
YoY % Growth
9.98%
6.97%
5.47%
4.47%
3.47%
2.47%
1.47%
Specialty shell egg sales
337,243.00
416,127.00
513,462.64
625,863.97
753,482.94
895,822.26
1,051,613.36
15.02%
23.39%
21.89%
20.39%
18.89%
17.39%
Co-pack specialty shell egg sales
52,786.00
43,282.00
47,783.83
52,037.14
55,888.48
59,186.55
61,791.44
15.65%
10.40%
8.90%
7.40%
5.90%
4.40%
Other
7,590.00
11,769.00
16,786.38
23,607.06
32,726.98
44,715.59
60,201.58
32.39%
55.06%
42.63%
40.63%
38.63%
36.63%
34.63%
Net shell egg sales
1,387,692.00
1,530,248.00
1,695,022.11
1,868,414.34
2,049,483.16
2,236,918.04
2,428,972.90
11.97%
10.27%
10.77%
10.23%
9.69%
9.15%
8.59%
Egg Products
53,215.00
45,880.00
55,849.46
58,345.31
60,369.24
61,859.68
62,768.33
% of non-specaility shell eggs
5.37%
4.33%
5.00%
Total Net Sales
1,440,907.00
1,576,128.00
1,750,871.58
1,926,759.65
2,109,852.40
2,298,777.72
2,491,741.23
11.86%
9.38%
11.09%
10.05%
9.50%
8.95%
8.39%
CAGR

20. Financial Projection (cont’d)
Based on Soy and Corn prices
Cost of sales:
2014A
2015A
2016F
2017F
2018F
2019F
2020F
Farm production
575,392.00
558,580.00
565,171.24
584,274.03
616,876.52
664,869.52
YoY % Growth
5.53%
-2.92%
0.00%
1.18%
3.38%
5.58%
7.78%
Processing and packaging
156,088.00
173,181.00
188,682.21
205,099
222,431.89
240,673.25
259,808.88
13.52%
10.95%
8.95%
8.70%
8.45%
8.20%
7.95%
Outside egg purchases and other
371,885.00
413,863.00
459,386.86
506,379.82
555,453.30
606,252.12
658,303.05
% of Net shell eggs
26.80%
27.05%
27.10%
Total Shell eggs
1,103,365.00
1,145,624.00
1,206,649.07
1,277,121.98
1,363,698.64
1,467,147.34
1,589,033.07
Egg products
33,509.00
33,886.00
36,250.12
38,367.27
40,968.20
44,076.00
47,737.69
% of Total shell eggs
3.04%
2.96%
3.00%
Other
1,269.00
897.00
1,174.16
1,242.73
1,326.98
1,427.64
1,546.24
0.12%
0.08%
0.10%
Total Costs of Sales
1,138,143.00
1,180,407.00
1,244,073.35
1,316,731.98
1,405,993.82
1,512,650.99
1,638,317.01
Based on the fact that more automated process
Fixed % of total shell eggs are bought from outside and remain constant year on year

21. Cost of Equity & WACC

22. Discounted Cash Flow Valuation
Cal-Maine Foods, Inc. Discounted Cash Flow Analysis ($ thousands) 1 2 3 4 5
2016E
2017E
2018E
2019E
2020E
Terminal Value
Net Income
220,482.74
277,623.36
328,247.27
371,446.57
405,246.49
Depreciation
45,221.25
49,764.06
54,492.95
59,372.49
64,356.32
Capital Expenditures
(98,386.89)
(115,977.63)
(135,437.96)
(156,760.77)
(179,886.51)
Changes in Net Working Capital
(33,558.81)
(9,899.20)
(19,153.46)
(20,181.66)
(20,318.34)
Less Increases in A/R
9,309.74
11,062.82
11,251.79
12,028.28
11,990.69
Less Increases in Inventories
33,724.40
8,446.97
17,905.93
18,476.34
18,871.26
Plus Increases in A/P
9,475.33
9,610.59
10,004.26
10,322.96
10,543.60
Free Cash Flow
133,758
201,511
228,149
253,877
269,398
3,003,661
Present Value
119,755
161,527
163,734
163,123
154,975
1,727,894
Discount Rate
11.69%
Terminal Growth Rate
2.50%
Calculation of Implied Share Price
Implied Enterprise value
2,491,007
Less Debt
40,795
Implied Market Value
2,450,212
Number of shares outstanding
43,698
Price
$56.07
Sensitivity table
$56.07
2.00%
2.25%
2.50%
2.75%
3.00%
3.25%
11.19%
$ 57.02
$ 58.24
$ 59.54
$ 60.91
$ 62.37
$ 63.92
11.44%
$ 55.39
$ 56.54
$ 57.76
$ 59.04
$ 60.40
$ 61.85
11.69%
$ 53.85
$ 54.93
$ 56.07
$ 57.28
$ 58.55
$ 59.90
11.94%
$ 52.39
$ 53.40
$ 54.48
$ 55.61
$ 56.80
$ 58.06
12.19%
$ 51.00
$ 51.96
$ 52.96
$ 54.03
$ 55.15
$ 56.33
Current Price $
Upside Potential
20.51%

23. Recommendation: buy 100 shares at market price
Dividend yield: Current Yield 8.15% ($ 3.93), last year dividend yield 2% (1.11), 1/3rd net income distributed as dividend
Expansion in Specialty eggs market (higher priced and less volatile In prices)
Expansion opportunity throughout U.S.
Current stock price: $46.53
DCF valuation:
$56.07
Changing Consumer Preference
Flock diseases
Regulations
Recommendation: buy 100 shares at market price