There has been much talk in the media of the drought in California, one of the most severe on record, and how it has been affecting life in the most populated state.
But how specifically is the drought affecting the business landscape?
To answer this question, we can use AlphaSense to find those companies which are mentioning the drought in the context of their business. In this way, we can quickly get a sense of which sectors have been the most broadly affected, which industries and their individual companies are seeing an impact on their business and the specific nature of the exposure in each case.
By aggregating the total number of discussions by industry over the past year, we can arrive at an overall picture of the industries which are seeing a potential impact from the drought.
The U.S. is heavily dependent on California for its agricultural output with the state producing the vast majority of the nation’s fruits, vegetables and nuts. With that in mind, it’s no surprise to find food products companies at the top of list.
Unsurprisingly, we quickly see that the discussions in the documents of these companies are largely negative. Companies are expecting an increase in production and operating costs (Stevia $STVF, Tenet Healthcare $THC, Tejon $TRC), decreases in productivity (Constellation Brands $STZ), water availability problems and increased prices (Sprouts Farmers Markets $SFM).
We can see these issues extending beyond the food products industry to companies who use agricultural products as an input, such as Chipotle ($CMG), that are seeing a rise in costs. Conversely, industries who support the agricultural process, such as chemicals, are seeing large sales drops (Itronics $ITRO) and the potential price effect of inventory build ups (Platform Specialty $PAH).
Banks and other financial companies are wary of the affect that the drought could have on their businesses. Regional banks which extend agricultural credit (First Northern Community Bancorp $FNRN, SVB Financial $SIVB), or loans collateralized by agricultural land (Heritage Oaks Bancorp $HEOP, Sierra Bancorp $BSRR) have dedicated significant sections within their filings to detail the risk of the drought to their business. Many other financial companies are simply worried about the potential impact of the drought on overall economic conditions and thus their business (Community West Bancshares $CWBC).
The homebuilding industry has concerns too, where companies are facing challenges developing land. The largest of these challenges appear to be obtaining water connection permits and regulatory approval (KB Home $KBH, William Lyon Homes $WLH, Standard Pacific $SPF), which is threatening the industry with project delays and construction halts. Many other companies are facing the challenge of water availability, leading to the prospect of sharply higher production costs. These include companies in the in the oil and gas industry (California Resources $CRC, North American Oil and Gas $NAMG, Solazyme $SZYM) and the semiconductors industry (Linear Technology $LLTC, TTM Technologies $TTMI).
Some companies could even benefit by offering solutions. Companies in the industrial space are offering potential solutions to the crisis, such as atmospheric water generation (Ambient Water $AWGI, Medifirst Solutions $MFST), water efficiency solutions (Toro $TTC), desalination (Energy Recovery $ERII) and water reclamation (Xylem $XYL, OriginClear $OOIL). Other companies are looking to benefit from a change of dynamics in their market – SolarCity ($SCTY) sees the increase in costs in the fossil fuel electricity generation market as an opportunity for solar energy. Similarly, some companies (Energy Transfer Partners $ETP) expect to benefit from increased demand in California for interstate energy, resulting from the shortfall in hydroelectric power.
To access a complete list of companies mentioning the drought, conduct a search on AlphaSense, the financial search engine in use by investment and research professionals worldwide. AlphaSense finds this information in seconds – with one search across all available content.