You've probably heard breakfast is the most important meal of the day.
But, did you know people who regularly eat breakfast are more productive and have better mental performance? Numerous studies also show regular breakfast eaters have significantly lower risk of obesity, high blood pressure and diabetes.
As Americans become more aware of breakfast's importance, breakfast foods are on the rise. According to Mintel research, the breakfast sector grew 20% between 2007 and 2011. By 2017, it's expected to expand 26% more.
While coffee and donuts may sound like a tempting choice, a survey on What America Eats found 73% of us actually prefer savory breakfast foods over sweet.
Eggs and breakfast sandwiches are some of our most common choices, according to market research firm NDP Group. No wonder. A study from the University of Missouri found breakfasts high in protein -- like eggs -- help you stay full longer. So, you can get through your long day easier.
With many fast-food chains now offering egg-based breakfast items, egg demand is soaring. In fact, egg consumption is the highest in seven years, according to the U.S. Department of Agriculture. And, it's expected to keep increasing from here.
To keep pace, U.S. egg production is also on the upswing. Between 2010 and 2013, egg production rose at an annualized rate of 1.1%. So far this year, production is up another 1% and will likely continue higher.
In the U.S., there are currently about 175 U.S. egg-producing companies (with flocks of over 75,000 hens.) But, there's one egg company that stands out from the crowd. It's America's biggest. Even though you've probably never heard of it, it's a name you'll definitely want to add to your investing portfolio!
Cal-Maine (Nasdaq: CALM) is the nation's largest producer, packager, marketer and distributor of shelled eggs. With more than 33 million hens, in 2013, the company sold more than 950 million dozen-shelled-egg cartons.
Right now the company is sizzling. It just reported a blowout fiscal third-quarter, sending shares to a fresh all-time high. With strong momentum and nothing in the way to cap the stock, shares look poised to surge higher, making now a potentially lucrative time to invest.
With Americans gobbling up breakfast sandwiches -- contributing to rising egg demand -- there are also three other important factors driving Cal-Main's growth: increased demand for specialty eggs, favorable egg prices and feed costs, and strategic acquisitions.
Greater Demand For Specialty Eggs
As Americans become increasingly health conscious, there's heightened demand for specialty eggs, like organic, nutritionally enhanced and cage-free.
In the most recently reported third-quarter, Cal-Maine's sales of specialty eggs increased 9% from the year-ago period, making up around 17% of total revenue. Management believes specialty eggs 'will continue to be a key driver of our growth as we capitalize on favorable consumer demand trends.'
Looking at organic food sales, the optimism is warranted. According to the Organic Trade Association, organic food sales increased 10.2% in 2012, compared to 3.7% for conventional food. Between 2013 and 2018, the market for organic food is expected to increase at a compound annual growth rate of 14%. With heightened consumer demand for organic food, Cal-Maine should be well-positioned to cater to the expanding specialty egg market.
Higher Egg Prices Coupled With Lower Feed Costs
Market conditions also favorably support Cal-Maine's growth. Due to increased demand, egg prices have risen. Last year at this time, a dozen eggs went for about $0.93. Today, those same eggs go for $1.17.
Reduced feed costs are the other favorable part of the equation. During the past couple years, feed costs were at record highs. In 2012, feed costs were an average of $0.57 per dozen eggs. That number is now dropped about 19%, to $0.46 per dozen eggs.
These factors contributed to Cal-Maine's strong quarter. Revenue for the period rose 10%. Earnings soared 39% from the year-earlier quarter to $1.77 per share. So long as the trend continues, the company should continue to pump out solid fundamentals while rewarding investors with strong stock growth.
Company Growth Through Acquisitions
Acquisitions are another important growth factor for Cal-Maine. Through strategic acquisitions, the company is creating industry consolidation, in its favor.
Although Cal-Maine is currently the nation's largest egg producer, it comprises only about 21% of the total U.S. egg industry. Taken together, Cal-Maine and the other nine largest producers only make up about half the egg market. Because there are many smaller egg companies, Cal-Maine has the opportunity to grow by snapping up smaller competitors.
In the third-quarter, Cal-Maine completed the acquisition of Delta Egg Farm, adding about 1.6 million hens to its operations. The acquisition should help secure Cal-Maine's place as the egg industry giant. With plans to expand existing facilities, the extra egg-laying capacity should further help meet increased product demand, allowing the company to grow well into the future.
Looking ahead to the full 2014 fiscal year and the upcoming quarters, revenue and earnings are projected to remain strong.
Investors are also rewarded with an attractive forward annual dividend yield of 3.3% ($2.36 per share). In the most recently reported third-quarter, the quarterly dividend payout increased 64%, to $0.59 per share. Cal-Maine's dividend policy is to payout one-third of its net income each quarter. So if net income rises, dividend payouts should too.
Given the company's strong outlook, I believe Cal-Maine is a buy.
Risks to consider: The egg industry is typically volatile. At present, the conditions are in Cal-Maine's favor: feed costs have fallen, selling prices have risen and demand is strong. However, any new food trends veering away from egg-based breakfasts could squeeze growth. To continue profiting, Cal-Maine will need to keep innovating in its organic product line while seeking to acquire smaller competitors. At present, however, the egg producer shows strong growth potential and should be a rewarding investment.
Action to Take --> Buy CALM at the market price. Set stop-loss at $63.59, slightly below current support. Set initial price target at $84.99 for a potential 19.7% gain by late 2014.
