Vital Farms 10-Cap

I have found a few different formulas for 10-cap. The one I will be using in this analysis is as such:

Owners Earnings x 10 = 10 Cap Price
Owners Earnings =
Net Income +
Depreciation & Amortization +
Net Change: Accounts Receivable +
Net Change: Accounts Payable +
Income Tax +
Maintenance Capital Expenditures

I got the formula for Owner earnings from the 1986 Annual Shareholder Letter written by Buffett.

All of these values were reported in the 2026 Vital Farms 10k except the Maintenance Capital Expenditures, I will dive deeper into the Maint CapEx below. Here is the formula filled in.

Net Income +$66,282K
D&A +$13,844K
+ Net Change: Accounts Receivable −$13,500K (added as negative per formula)
+ Net Change: Accounts Payable +$16,931K
+ Income Tax +$24,982K
+ Maintenance CapEx−$28,646K (negative per formula) = Owner Earnings ~ $79,893K ≈ $79.9M

$79.9M x 10 = $799 Million Market Cap to equal 10 cap price.
Current Market cap is $458M.
Well below the calculated 10 cap price.

The nitty gritty. Maintenance CapEx was hard to calculate. My figure is very much a rough estimate. I took 3 different approaches to triangulate the figure. I eventually settled on the simplest one, which was concurrently the highest value. This lead me to have some margin of safety baked in.

Vital Farms discloses PPPE on their Cash Flow Statement but I could not find anywhere within their 10-K a split of growth versus maintenance. These are the different methods I used in assessing potential Maintenance CapEx.

Method 1: Depreciation as Maintenance Capex Proxy

The most common approximation is that maintenance capex ≈ depreciation on existing assets (i.e., what it costs to keep current earning power intact). Their D&A has been remarkably flat year-over-year on existing assets ($9.25M in both FY25 and FY24), which is actually a good sign — it means growth capex isn't yet significantly inflating the base depreciation cost.

Method 2: Back Out the Known Growth Capex

Vital Farms actually disclosed the major growth project: Vital Crossroads, a second egg washing/packing facility in Seymour, Indiana. From the MD&A:

• $120–140M total for the Vital Crossroads facility (over next 12 months and beyond)

• $5–15M for accelerator farm development

In FY2025, total capex was $81.95M. Construction in progress jumped from $14.46M → $77.82M (a +$63.4M increase), almost entirely attributable to Vital Crossroads groundbreaking.

So an estimated FY2025 split looks like:

Vital Crossroads (growth) ~$60–65M
Maintenance/sustaining capex~$17–22M
Total actual capex $81.95M

This gives a maintenance capex estimate of ~$17–22M — somewhat above depreciation, which makes sense for a company with farms and food processing equipment that requires regular upkeep beyond accounting depreciation.

Method 3: Pre-Growth-Phase Capex Baseline

Before Vital Crossroads broke ground, their capex was:

• FY2023: $11.5M

• FY2024: $28.6M (began scaling up)

I decided that using the FY2024 CapEx was a reasonable estimate for Maintenance CapEx as it was before the breaking ground of the new Vital Crossroads Facility.

I ultimately decided to use the 3rd method as it was the simplest and least "hand wavy". It was also the highest but not so different from the others to seem unreasonable.

I am cautious about being too optimistic for the valuation because the Net Income figure is likely to drop with the last quarterly results in mind. The huge capex spend on growth as well as a decrease in egg prices had them drop from 16.5 Million profit to 1.5 Million loss YoY. They also lost operating margin. I understand that is very short term thinking for Buffett style investing but I think it is worth considering in the big picture of this company since they are a relatively young company and we don't have a lot of information.

Sentiment: Slightly Bullish