Are we going into a recession? ( Archived) (69)

Are we going into a recession? whaddya mean going?

Just an update!

Cal-Maine Foods (CALM) is the largest egg producer and distributor in the US. It sells 685 million dozen eggs a year and holds a 15% market share, with a flock of 30 million birds including the 2 million recently acquired through the purchase of Zephyr Egg along with additional flock from the purchase of Cargill's egg operations.

In the quarter ending June 2008, the company reported a profit increase of 99% to $1.54 per share. Revenues for the quarter were up 39 % to $235.6 million while full-year earnings came in at $151.9 million, or $6.41 per share on sales of $916 million.

Feed costs are up 30% mainly due to the rise in corn prices; however, Cal-Maine kept its margins fat by passing on the increased costs to the consumers by raising egg prices by 40% since last year.

Moreover, CALM has been able to expand its margins further by selling specialty eggs, including organic, cage-free, vegetarian and low-cholestrol eggs, which contribute over 15% of their business. These are higher margin products and growing at 15-20% annually.

The company also pays out a hefty dividend as part of their plan to pay 33% of their earnings to share-holders. The stock currently yields over 5%, yet it trades at a Price to Sales ratio of 1 and a P/E of 6. Short interest in this stock runs extremely high at over 90%, so any move up might be exaggerated by short covering.

Critics argue that a fresh supply of eggs will hit the market in the next few months, driving down the prices. However, USDA estimates that the current US flock of chickens is 2% below last year's levels. Some analysts even argue that egg prices might rise to $2 per dozen over the next few months.

With commodities in a short-term downtrend, Cal-Maine will probably keep growing its margins by keeping prices high even as feed costs decline. Moreover, egg is still a better and cheaper protein source than meats and is a highly inelastic product.

Technically, the stock is very close to breaking out to an all-time high. In fact, the stock made an all-time intra-day high yesterday before pulling back. One strong rally on high volume is all that stands between the stock and an explosive move to the upside. Granted the stock has almost tripled from this time last year, but solid earnings, cheap valuation, strong demand for eggs and a high short-interest make for a great bull recipe.

In the UK, whilst we have the 'credit crunch' and things have become expensive, we are not in a recession here, we will be, but not yet.

Since living in Austria, where there is a better standard of living for less money, and being back in the UK for the summer, I have noticed that petrol, food has increased in price, but food has been cheap for many years. The UK economy relys on the housing market, the banks have given mortgages to sub prime customers, for many years, people have borrowed up to 125% of the property value, then bang, the banks have no money, the Bank of England push up the interest rate, people cannot pay their mortgages, and we have a problem.

Small businesses here have been affected badly, our taxes are high, corporation tax has hindered small business when Gordon Brown as chancellor abolished the tax threshold without announcing it, jobs are lost because people go out of business.

My job is secure, thank goodness, but I feel for those who are not so secure, I work for an American business in Salzburg, we are tucked away there with little interference from the outside world.

The mood in the UK, I have noticed is one of constant worry, young families unable to buy homes, elderly people who are struggling to pay their fuel bills, it is a nation of doom and gloom.

Its nearly as bad here in Ireland. People can't afford to buy property and there is also a property slump to. Builders are finding it hard to sell property and to top it of there will a 5 - 10 cents increase in a pint of Guinness.

Hi Skimpy

In Austria, we can buy a packet of cigarettes for 4euros, a glass of wine for 2euros, I went out on Friday night, I paid £14 for two glasses of wine and £6.70 for a packet of cigarettes.

We should go back to Bharain darling, fuel there I could fill my car up for £15 and get pissed for about a tenner.

Bahrain sounds nice with lots of Mojitos

And swarmas....

Equivalent to a kebab after a night on the vino collapso.

Mmmm sounds nice you are a nice temptress.

Eh, I know how to show a man a good time, ten pints, a kebab, throwing up, all mine.