If you’re looking for controversial gambits in the equities market, it doesn’t get much more odious than what Tractor Supply (NASDAQ:TSCO) did. An American chain that largely serves the agricultural industry and people living in rural communities, Tractor Supply did the unthinkable in today’s environment: it backtracked on its diversity, equity, and inclusion (DEI) initiatives (essentially the opposite of “go woke, go broke”). Still, this seismic decision could at least temporarily benefit TSCO stock.
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According to The Wall Street Journal, Robby Starbuck, a former Hollywood director turned conservative activist, blasted Tractor Supply via a social media post. Declaring that he was about to expose the enterprise, Starbuck complained about the retailer’s various initiatives, such as displaying pride flags and promoting the COVID-19 vaccine. Subsequently, the post went viral, forcing Tractor Supply executives to gameplan a response.
Apparently, the pressure was too intense. Three weeks following the post, the company stated that it would effectively eliminate its DEI strategies. This includes cutting efforts to reduce environmental impact and improve employee diversity. It’s a wildly controversial move, and many (if not most) would understandably state that it’s offensive.
Nevertheless, if you just consider the raw numbers, the decision makes sense. For that reason, I am (for now) bullish on TSCO stock.
Tough Realities Support Scandalous TSCO Stock
To be 100% clear, I’m not taking a political position regarding TSCO stock, nor do I have a dog in the fight. Primarily, I’m fascinated with the sociological implications behind Tractor Supply’s decision-making process. Management surely would have considered Nike (NYSE:NKE) and its decision to support former NFL quarterback Colin Kaepernick amid his national anthem protest scandal a few years back.
At the same time, it would also be aware of alcoholic beverage maker Anheuser-Busch (NYSE:BUD) and the firestorm its Bud Light brand caused when it launched an advertising promo with transgender advocate Dylan Mulvaney. It was under this light that the conservative battle cry “go woke, go broke” – though already commonplace – went mainstream.
Fearing a similar backlash, Tractor Supply responded in a resolute way; essentially, no diversity, no politics, and little to no sustainability. Instead, as TipRanks reporter Amit Singh remarked, the company will focus on core rural priorities.
These efforts include “include agricultural education, land and water conservation, animal welfare, and veteran support, among others. Its pivot reflects a response to its customers’ values and feedback. The company aims to strengthen its core market by refocusing on rural priorities.”
Some context is necessary. Singh noted that the company “is witnessing a recovery in demand for big-ticket items. In addition, its total customer count increased during the first quarter. Overall, its focus on customer feedback, demand recovery, and cost reduction initiatives supported its earnings and share price.”
It’s hard to argue otherwise. Since the start of the year, TSCO stock gained over 21%. However, in the trailing month, shares dipped more than 3%. In order to keep the good times going, management felt extraordinary pressure to satisfy its mainline customers. That would be farmers, other agricultural specialists, and residents of rural communities.
As the Pew Research Center pointed out, rural areas “tend to have a higher concentration of Republicans and Republican-leaning independents.” From Tractor Supply’s perspective, it’s simply not worth offending its majority clientele.
Playing the Numbers Game
Of course, it goes without saying that Tractor Supply’s response to the controversy is also not without controversy. In particular, the National Black Farmers Association called on the company’s president and CEO to resign from the post. This is really where the cynicism comes into play.
Essentially, Tractor Supply is playing the numbers game. Almost certainly, the firm’s leadership team recognized how foul its caving into conservative pressure would look to everyone else. Typically, the idea is to support diversity initiatives in a good-faith effort to help heal prior racial injustices. Going against this framework represents a major risk.
Moreover, several years down the line, TSCO stock could be a sell. In my opinion, there’s no way that social advocacy groups will forget (or even forgive) this controversial decision. However, for the time being, the numbers favor the contentious move.
According to the National Sustainable Agriculture Coalition, 3.2 million agricultural producers and farmers (or 95%) are white. Only 41,807 producers/farmers are Black. So, even if all the Black farmers collectively boycotted Tractor Supply, from management’s perspective, it’s better to offend them than it is to offend white customers.
Another factor that could have played into the decision is the valuation. TSCO stock trades at 1.96x trailing-year sales. Whether you look at the metric from a retail perspective or a farming products perspective, TSCO is clearly overvalued relative to these industries, as they sport lower multiples.
Further, analysts project Fiscal 2024 sales to land at $14.98 billion, which is up a modest 2.9% from last year. It can’t afford to tick off its core customers. What’s more, there’s a possibility that Tractor Supply could boost its sales by forging a unique bond with rural residents.
Is Tractor Supply Stock a Buy, According to Analysts?
Turning to Wall Street, TSCO stock has a Moderate Buy consensus rating based on 13 Buys, seven Holds, and two Sell ratings. The average TSCO stock price target is $268.95, implying 3.7% upside potential.
The Takeaway: Tractor Supply Goes to “Sleep” to Save TSCO Stock
To avoid the perception of being woke (and thus its consequences), Tractor Supply made the almost-unthinkable decision to go to “sleep.” In this way, it hopes to reap profits from its core customers. In any other industry, such a move would probably be catastrophic. However, the hard data suggests that the retailer’s mainline buyers are overwhelmingly white and conservative. Thus, management felt that it had little choice, though years down the line, this controversy could hurt TSCO stock.
