Falling river water levels across a number of economies, coupled with changing weather patterns across the globe, are impacting companies across a spectrum. The intricate web of modern commerce means an adverse trend in one country can impact a company that may be in another corner of the world. Let us take a look at three stocks — TSLA, TSN, and BROS — that are seeing or could see an impact from this dynamic.
Tesla (TSLA) (GB:0R0X)
At first glance, one would think that this global EV manufacturer would not be susceptible to drought, but falling water levels in the Yangzte river in China have led to an electricity shortage in the country’s Sichuan province. Tesla has sought the help of Chinese authorities so that its suppliers can have the required electricity supply.
The development comes just as China had reopened after a major COVID-19 shutdown, and Tesla was beginning to come out of the supply chain challenges in the region.
In another major development, Tesla is hiking the price of its Full Self-Driving System (FSD) by 25% beginning September 5. The autopilot system, though, is seeing regulatory concerns over potential defects.
What is the Future Price of Tesla Stock?
Shares of the company are down 27 year-to-date, and the Street is cautiously optimistic about the company, with a Moderate Buy consensus rating alongside an average Tesla stock price target of $921.59.
Tyson Foods (TSN) (GB:0IHR)
Tyson Foods is a global food company providing chicken, pork, beef, and prepared foods through its portfolio of brands, which include Tyson, Jimmy Dean, Ball Park, Wright, ibp, and State Fair.
In its third quarter numbers this month, Tyson reported lower volumes of pork, chicken, and prepared foods coupled with a lower average price of beef and pork as compared to the previous year. Additionally, the company also saw a contraction in the operating margin for beef and pork.
Moreover, Tyson has not been able to capitalize on robust demand for beef due to supply chain and labor challenges. Input costs such as labor, freight, transport, and live cattle too are on the rise. Pork and chicken, on the other hand, have seen lower sales volume.
These problems can be expected to compound as a drought means a decrease in cultivation area and a rise in feed prices. Feed is the biggest operating expense for cow/calf producers. According to the USDA Economic Research Service (ERS), beef cattle feed prices were already up 16% in May as compared to the previous year. Additionally, higher corn, sorghum, oats, and barley prices also mean higher feed costs.
Is TSN a Good Buy?
TSN is targeting $1 billion from productivity improvements by the end of 2024, but Wall Street has a Hold consensus rating on the stock. The average TSN stock price target of $92.43 implies 14.9% potential upside.
Dutch Bros (BROS)
The third name on our list wholesales and distributes coffee and related products via drive-thru coffee outlets.
Coffee prices are increasing and could increase further as climate change takes its toll. Brazil, which is the largest coffee producer in the world, has seen a drought, as well as frost last year. In some areas, the production of Arabica coffee could be less than 50% of a good harvest year, and this could mean higher prices for a cup of coffee. The industry is already suffering from higher costs and supply chain woes.
Coffee futures prices are already up 26.3% over the past year. Moreover, Dutch Bros does not enter into futures contracts or derivative arrangements to source its coffee, which could impact it as prices shoot up. Our Risk Factors tool highlights that Dutch Bros sources high-quality Arabica beans, and if it is not able to fulfill demand due to a shortage, then its profitability could be impacted.
Dutch Bros’ second-quarter numbers this month were marked by a 44% year-over-year increase in revenue and a 3% pricing increase. The company’s store count now stands upwards of 600.
Nonetheless, the company continued to witness inflationary pressures during the quarter and is looking at further price increases for the remainder of 2022.
Is BROS Stock a Buy or Sell?
The Street has a Moderate Buy consensus rating on BROS stock based on three buys and four sells assigned in the past three months. The average BROS stock price forecast is $47.71, which implies 24.5% potential upside. That’s after a nearly 13% slide in share price over the past five days.
Takeaway – Investors Need to Consider Weather Risks
Drought and shifting weather patterns continue to impact markets in unexpected ways. While the three names on our list today remain susceptible to these dynamics, pockets of opportunity also remain for savvy investors, as these three stocks could be beneficiaries of the current drought situation.
