By Evie Liu

Egg prices keep rising this year as the H5N1 avian influenza spreads across the country, killing millions of egg-laying chickens.

Vital Farms, a premium producer offering pasture-raised eggs, could benefit. Its outdoor, open-space practices invite lower chances of bird flu infection -- and its expensive eggs don't look that expensive any more, as prices for regular eggs also soar through the roof.

Unlike large-scale egg producers with industrialized operations, Vital Farms contracts with a network of small family farms that produce pasture-raised eggs with more ethical and sustainable practices. Access to outdoor pastures allows hens to roam and forage freely.

Those practices often come with higher costs, and as a result, Vital Farms' products normally sell at higher prices compared with conventional battery-cage or cage-free eggs.

The average price for Vital Farms' most popular product, the conventional, pasture raised 12-count eggs in the black carton, costs a bit over $8, according to the firm.

Before the bird flu disrupted the egg market, in January 2024, the national average for grade-A large white eggs was only $2.50 per dozen.

But as the bird flu killed millions of layer chickens across the nation, prices for regular commodity eggs have been rising over the past months. In the first week of February, the national average for wholesale large white eggs reached $7.34 per dozen, according to the Department of Agriculture.

Vital Farms, in comparison, only had one bird flu incident over the course of 2024, which affected its supply by less than half a percent.

"There is some resilience that comes from the distributed nature of our supply," CEO Russell Diez-Canseco told Barron's, "I'm really proud of the fact that our network of small family farms has been so vigilant in protecting the birds and it shows up in the numbers."

Vital Farms doesn't sell its eggs in the wholesale commodity market, instead selling directly to retailers with its own packaging and branding. It raised prices on some products at the beginning of 2024 due to rising costs, but hasn't done so since then, Diez-Canseco said.

"When regular eggs are being sold to retailers at seven bucks a carton, the price difference is going to fade, and you're probably going to see more people switching to specialty eggs in general," says Pooran Sharma, a commodity analyst with Stephens.

Sometimes the cheaper options might not be available at all. If only higher priced premium eggs are available, a quarter of shoppers said they would trade up, according to a recent survey of more than 1,000 egg buyers by market research company Numerator.

Vital Farms is much smaller compared with large-scale egg producers, with just $145 million revenue in the latest reported quarter. Cal-Maine, in comparison, posted $955 million in sales.

Vital Farms was already seeing strong growth as consumers increasingly shifted toward natural, healthy, and ethically sourced food. In the third quarter of 2024, the company posted a 32% year-over-year growth in sales and 60% growth in earnings per share.

The company has a sharp focus on infrastructure investments to expand its farm networks and build more packaging facilities. Telsey Group analyst Sarang Vora believes these efforts should help the firm exceed its stated sales target of $1 billion by 2027.

Vital Farms shares have already rallied 134% over the past 12 months. The stock's enterprise value is currently 14 times its earnings before interest, taxes, depreciation and amortization, or Ebitda, for the next 12 months, much higher than Cal-Maine's six times.

Still, many on Wall Street believe the stock has more room to run. According to FactSet, seven of the eight analysts that follow the stock rate it a Buy, and their consensus price target of nearly $48 is 35% above its current price.

"We believe Vital Farms' strong growth profile and balance sheet, combined with its trusted brand positioning and superior execution, should command a premium valuation," wrote Vora in a January note.

Diez-Canseco said the firm operates as a branded consumer packaged goods, or CPG, company that has its own brand recognition and marketing focus on animal welfare, sustainability, and transparency.

For example, its eggs are all traceable, where consumers can see the farm where the eggs came from -- a rare practice in the egg industry as well as the broad food system.

"Our ability to continue growing faster than the category, even with a premium price, is evidence that we've done something more than just bringing a new type of egg to the marketplace," said Diez-Canseco. "It has a lot to do with bringing trust and transparency to a category of products that hasn't historically enjoyed that."

If Vital Farms were to be considered a CPG firm, it should trade closer to other fast-growing peers in the space at around 19 times enterprise value to Ebitda, according to Vora. The analyst has a Buy rating for the stock with a target price of $52.

Write to Evie Liu at evie.liu@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 14, 2025 00:30 ET (05:30 GMT)

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