Cal-Maine Foods Valuation: Did It Change after Its 4Q16 Results?



What does a forward PE ratio mean?

In this part, we’ll use the forward PE (price-to-earnings) ratio to compare the relative valuation of Cal-Maine Foods (CALM) and its peers. The forward PE valuation multiple indicates how much an investor is willing to pay for the company’s EPS (earnings per share) for the next four quarters. Cal-Maine Foods’ valuation increased after its fiscal 4Q16 earnings results.

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Cal-Maine Foods’ valuation

After the earnings, Cal-Maine is trading at a lower forward PE ratio compared to Hormel Foods (HRL). It’s trading at 20.1x the next 12-month EPS as of July 18. Analysts expect Cal-Maine’s earnings and revenue to decline by 74% and 22% for fiscal 2017.

Hormel is trading at a higher forward PE ratio compared to its peers. Currently, it’s trading at 23.06x the next 12-month EPS as of July 18, 2016. For 2016, Hormel raised its EPS guidance range to $1.50–$1.56. This represents a 14%–18% increase over fiscal 2015. Analysts expect Hormel’s adjusted EPS to rise by 21% and revenue to grow by 2% in fiscal 2016.

Currently, Tyson Foods (TSN) is trading at a lower PE ratio than Cal-Maine of 15.4x as of July 18. Tyson also raised its fiscal 2016 EPS guidance to $3.85–$3.95 due to its strong results in the current quarter and positive outlook for fiscal 2016. Analysts estimate a 37% rise in Tyson’s earnings in fiscal 2016. However, it’s trading at a lower PE ratio than Hormel. This can be justified by the fact that its revenue will likely fall 10% in fiscal 2016.

Pilgrim’s Pride (PPC) is trading at the lowest PE ratio of 11.8x as of July 18. Analysts expect Pilgrim’s Pride’s earnings to fall 19% in fiscal 2016 with no revenue growth. This justifies the lower PE ratio.

ETF exposure

To gain exposure to these stocks, you can invest in ETFs like the First Trust Consumer Staples AlphaDEX Fund (FXG). FXG invests ~10% of its portfolio in Hormel, Tyson, and Pilgrim’s Pride. The Global X SuperDividend U.S. ETF (DIV) invests 1.9% in Cal-Maine.


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