Nice article. This is a stock that would likely be a great buy in a general mkt downturn simply because of their capital structure and I don't see the market for eggs shrinking. Though it could be a good buy now, depending on how aggressive they are with buybacks, keeping a floor on the price.
Do you have a rough estimate of what their run rate free cash flow is on maintenace capex - meaning if they stop acquiring/growing and try to maintain flat revenue going forward? I like to use this metric to get a better valuation of any business.
Either way I plan to look at it in more detail, thanks for the article.
I thought about your question and the answer is tough. I think Tiago’s estimate highly compelling. I may put my own base estimate a bit lower though I struggled to pin a number. I respect how Tiago correctly identified “The same dozen eggs out the door can earn wildly different margins depending on where the cycle sits.” To solve for this, I tried to look at a trough scenario to set a lower-bound and still came out with FCF/EV yield of just over 7% (using the same EV estimate of 2.5B). The logic for that is below with assumptions and liberties taken. To be clear this is not a base case, but I like a margin of safety. Together with Tiago’s original estimate (350M) I feel it creates a respectable and probable range.
To establish a stress-tested run-rate Free Cash Flow floor that avoids the distortions of seasonal holiday volume and bird flu pricing windfalls, the calculation utilizes a per-dozen build based on the absolute bottom of the commodity cycle.
First, we isolate the company's trough margin during the third quarter of fiscal 2026, where a 70.1 percent crash in conventional egg prices down to $1.423 per dozen still generated $58.2 million in pre-tax income. After applying an adjusted tax expense to remove an $8.2 million one-time tax benefit, and excluding the $659,000 in income attributable to noncontrolling interests, the company earned $42.2 million in adjusted net income available to shareholders on 322.6 million dozens sold. This results in a trough profit of roughly $0.131 per dozen.
Next, this stress-tested margin is multiplied by a normalized full-year sales volume of 1.283 billion dozens, which reflects an estimate based on actual fiscal 2025 totals and annualized fiscal 2026 year-to-date volumes, to establish a seasonally adjusted baseline earnings floor of $168.0 million. Because working capital nets to zero over a full year and physical maintenance CapEx perfectly cancels out physical depreciation in a zero-growth state, the final step is simply adding back surviving non-cash expenses: $2.2 million in intangible amortization and $5.3 million in stock-based compensation.
Ultimately, this process shows that Cal-Maine's strategic shift toward specialty eggs and hybrid pricing has structurally insulated the business, resulting in a potential stress-tested Free Cash Flow floor of approximately $175 million annually if the company halted growth spending and operated purely in a maintenance state even during a severe commodity trough.
That is great because it gives me a range to work with - thanks for adding in your stress tested free cash flow number. Always good to have both, using Tiago's normalized number plus a potential stress tested number to arrive at a valuation of the business.
Either way great work and thanks for bringing this company to my attention, as I noted in the other comment what I like here is a stable business with a net cash position + along with what looks like a good management team with good capital allocation skills.
I have seen this work out in other plays where the company is debt free and management decides to do a massive buyback, then the stock takes off on supply/demand - they could pull this off here with their massive cash stockpile. Will they down the line I don't know but they have the optionality, which I like.
Jumping in here since I have spent an embarrassing amount of time on this name (apologies to the author for crashing the thread and I would like to see his opinion as well).
On your run-rate question, this is actually the exact number I anchor my own valuation on, so we are using the same lens. My best estimate of normalised free cash flow, assuming flat revenue, no M&A, and maintenance capex only, sits in the $300M to $400M range. I use $350M as my central figure. Against an enterprise value of roughly $2.5B (about $3.65B market cap less roughly $1.15B of net cash at ~$77), that is an FCF/EV yield around 14%, versus the 10-year Treasury at 4.45%. A spread of roughly 9 to 10 points.
Two caveats I would add to that figure.
First, a big slice of recent capex is not maintenance. They have spent something like $400M of organic capex over the last two years, and a lot of that is cage-free conversion and the prepared-foods build (the new pancake line, and so on), which is growth or semi-mandatory spend rather than keeping-the-lights-on. So true maintenance-only capex is lower than the headline number, and the genuine flat-revenue run-rate could sit at the top of my range, or slightly above, if you actually froze all growth.
Second, and this part is important with eggs, flat revenue does not give you flat FCF. The same dozen eggs out the door can earn wildly different margins depending on where the cycle sits. FY2025 printed over $1B of FCF, FY2022 printed $54M. So $350M is the average I expect them to make through a whole cycle.
On your buyback point, you are right to flag it. The Board authorised a $500M repurchase program in February 2025, and as of the February 2026 quarter they had bought back roughly $99M in the open market (plus a $50M direct repurchase from the founding family), leaving around $350M of authorisation. That sits on top of the long-standing variable dividend (a third of net income in profitable quarters). So between the net-cash balance sheet, the dividend and now an actual buyback, your floor-in-a-downturn instinct holds up.
Tiago I truly appreciate the thoughtful response and did my best to compliment your work. Please let me know if you take any issue with the analysis and all best.
Good to see someone who sees it the same way I do in terms of valuation. I actually expected a lower a FCF run rate so $350M looks like a very good yield against EV.
If your numbers are close than I would agree with you that we are probably near a floor on the price. Two things that stick out to me, the strong cash position while they are still growing and the capital returns - it shows management is prudent with capital/debt levels and is shareholder oriented.
Generally these types of situations work out well for shareholders.
Thank you for the detailed feedback and your valuation estimates - this with the author's write up gives me a pretty good view of the investment thesis. Great stuff.
Thank you for your thoughtful comments and inquiry. It really made me think. As far as managements proven capital allocation ability that you mention here, that was one of the main reasons they made the cut for the whole write-up.
Nice article. This is a stock that would likely be a great buy in a general mkt downturn simply because of their capital structure and I don't see the market for eggs shrinking. Though it could be a good buy now, depending on how aggressive they are with buybacks, keeping a floor on the price.
Do you have a rough estimate of what their run rate free cash flow is on maintenace capex - meaning if they stop acquiring/growing and try to maintain flat revenue going forward? I like to use this metric to get a better valuation of any business.
Either way I plan to look at it in more detail, thanks for the article.
I thought about your question and the answer is tough. I think Tiago’s estimate highly compelling. I may put my own base estimate a bit lower though I struggled to pin a number. I respect how Tiago correctly identified “The same dozen eggs out the door can earn wildly different margins depending on where the cycle sits.” To solve for this, I tried to look at a trough scenario to set a lower-bound and still came out with FCF/EV yield of just over 7% (using the same EV estimate of 2.5B). The logic for that is below with assumptions and liberties taken. To be clear this is not a base case, but I like a margin of safety. Together with Tiago’s original estimate (350M) I feel it creates a respectable and probable range.
To establish a stress-tested run-rate Free Cash Flow floor that avoids the distortions of seasonal holiday volume and bird flu pricing windfalls, the calculation utilizes a per-dozen build based on the absolute bottom of the commodity cycle.
First, we isolate the company's trough margin during the third quarter of fiscal 2026, where a 70.1 percent crash in conventional egg prices down to $1.423 per dozen still generated $58.2 million in pre-tax income. After applying an adjusted tax expense to remove an $8.2 million one-time tax benefit, and excluding the $659,000 in income attributable to noncontrolling interests, the company earned $42.2 million in adjusted net income available to shareholders on 322.6 million dozens sold. This results in a trough profit of roughly $0.131 per dozen.
Next, this stress-tested margin is multiplied by a normalized full-year sales volume of 1.283 billion dozens, which reflects an estimate based on actual fiscal 2025 totals and annualized fiscal 2026 year-to-date volumes, to establish a seasonally adjusted baseline earnings floor of $168.0 million. Because working capital nets to zero over a full year and physical maintenance CapEx perfectly cancels out physical depreciation in a zero-growth state, the final step is simply adding back surviving non-cash expenses: $2.2 million in intangible amortization and $5.3 million in stock-based compensation.
Ultimately, this process shows that Cal-Maine's strategic shift toward specialty eggs and hybrid pricing has structurally insulated the business, resulting in a potential stress-tested Free Cash Flow floor of approximately $175 million annually if the company halted growth spending and operated purely in a maintenance state even during a severe commodity trough.
That is great because it gives me a range to work with - thanks for adding in your stress tested free cash flow number. Always good to have both, using Tiago's normalized number plus a potential stress tested number to arrive at a valuation of the business.
Either way great work and thanks for bringing this company to my attention, as I noted in the other comment what I like here is a stable business with a net cash position + along with what looks like a good management team with good capital allocation skills.
I have seen this work out in other plays where the company is debt free and management decides to do a massive buyback, then the stock takes off on supply/demand - they could pull this off here with their massive cash stockpile. Will they down the line I don't know but they have the optionality, which I like.
Jumping in here since I have spent an embarrassing amount of time on this name (apologies to the author for crashing the thread and I would like to see his opinion as well).
On your run-rate question, this is actually the exact number I anchor my own valuation on, so we are using the same lens. My best estimate of normalised free cash flow, assuming flat revenue, no M&A, and maintenance capex only, sits in the $300M to $400M range. I use $350M as my central figure. Against an enterprise value of roughly $2.5B (about $3.65B market cap less roughly $1.15B of net cash at ~$77), that is an FCF/EV yield around 14%, versus the 10-year Treasury at 4.45%. A spread of roughly 9 to 10 points.
Two caveats I would add to that figure.
First, a big slice of recent capex is not maintenance. They have spent something like $400M of organic capex over the last two years, and a lot of that is cage-free conversion and the prepared-foods build (the new pancake line, and so on), which is growth or semi-mandatory spend rather than keeping-the-lights-on. So true maintenance-only capex is lower than the headline number, and the genuine flat-revenue run-rate could sit at the top of my range, or slightly above, if you actually froze all growth.
Second, and this part is important with eggs, flat revenue does not give you flat FCF. The same dozen eggs out the door can earn wildly different margins depending on where the cycle sits. FY2025 printed over $1B of FCF, FY2022 printed $54M. So $350M is the average I expect them to make through a whole cycle.
On your buyback point, you are right to flag it. The Board authorised a $500M repurchase program in February 2025, and as of the February 2026 quarter they had bought back roughly $99M in the open market (plus a $50M direct repurchase from the founding family), leaving around $350M of authorisation. That sits on top of the long-standing variable dividend (a third of net income in profitable quarters). So between the net-cash balance sheet, the dividend and now an actual buyback, your floor-in-a-downturn instinct holds up.
Tiago I truly appreciate the thoughtful response and did my best to compliment your work. Please let me know if you take any issue with the analysis and all best.
Good to see someone who sees it the same way I do in terms of valuation. I actually expected a lower a FCF run rate so $350M looks like a very good yield against EV.
If your numbers are close than I would agree with you that we are probably near a floor on the price. Two things that stick out to me, the strong cash position while they are still growing and the capital returns - it shows management is prudent with capital/debt levels and is shareholder oriented.
Generally these types of situations work out well for shareholders.
Thank you for the detailed feedback and your valuation estimates - this with the author's write up gives me a pretty good view of the investment thesis. Great stuff.
Thank you for your thoughtful comments and inquiry. It really made me think. As far as managements proven capital allocation ability that you mention here, that was one of the main reasons they made the cut for the whole write-up.