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Presenting The Companies Most Exposed To A Slowdown In Government Spending

Tyler Durden's picture


Following the release of the yesterday's revised CBO projections, we, together with anyone with half a brain, were stunned by the ridiculous assumption that somehow the US government can grow its revenue by 50% (!) in the span of 3 years. Since absent a wholesale increase in taxes, which won't happen ahead of the Obama presidential elections, this has a snowball's chance in happening, the only recourse to the government is to cut spending. But where? Most major governmental expenditures are non-discretionary, yet spending has to be cut... Which brings us to the topic of this post: most likely the biggest sacrificial lamb will be companies on the dole of not only the US government, but certainly foreign governments (where unlike in the US, austerity is rampaging without mercy). Courtesy of data prepared by Lehman's (now Barclays after the Blue Light special rushed purchase of Lehman NA in bankruptcy court) Matt Rothman we present the companies whose revenues are comprised at least 50% of sales to governments, both foreign and domestic.

Rothman explains:

In this note, we highlight the companies that are most at risk in a broad scope to slowdown in government spending. Specifically, we list 127 companies [TD: we present just the top 78] within the Russell 3000 that have the largest part of their revenues derived from U.S. government sources.

This data is culled from the recent annual revenues released by the companies. In these annual filings, companies are required to list all customers that account for over 10% of their annual revenues and the amount of revenues that they derive from each of these customers. We have searched for all government sources, separating out revenues from foreign governments, the U.S. federal government, state governments and local municipalities.

As shown in Figure 1, the companies are concentrated within Industrials (50 companies), Health Care (46 companies) and Technology (24 companies) sectors. As further broken down in Figure 2 to the Industry Group level, we find a preponderance of companies within Capital Goods (44 companies) and Health Care Equipment and Services (41 companies) and a tailing off into Software (12 companies) and Technology Hardware (11 companies).

Obviously, the degree of risk for each individual company is a complex matter that must be studied carefully on a case-by-case basis and our work here is best used as a starting point for that analysis. Nonetheless, we do believe the companies shown in Figure 3 do represent names where revenues may be at risk should a material cut in government spending materialize.

We won't recreate the entire list: we focus only on the 78 top companies whose revenue from governments is at least 50% of total. We are confident this should provide a large enough basket to express a bearish outlook on government largesse (or, inversely, bullish on fiscal prudence and/or austerity).


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Thu, 01/27/2011 - 15:46 | 910250 vote_libertaria...
vote_libertarian_party's picture

Thats a lot of tech spending.

Thu, 01/27/2011 - 16:31 | 910429 NOTW777
NOTW777's picture

where are the porn companies

Thu, 01/27/2011 - 19:09 | 911153 nmewn
nmewn's picture

Now this is news I can use.

Thu, 01/27/2011 - 15:46 | 910253 Alcoholic Nativ...
Alcoholic Native American's picture

It's not government spending if it's contracted out and a fair share goes to the wall street union thugs and the "Big Bonus" bosses.

Unions are destroying the country!

Thu, 01/27/2011 - 15:49 | 910265 JohnnyR2121
JohnnyR2121's picture


I'm surprised Zerohedge has not posted this video. It won't be on the evening or in China

Thu, 01/27/2011 - 16:15 | 910361 Jrsurf00
Jrsurf00's picture


Thu, 01/27/2011 - 17:41 | 910788 Nedly66
Nedly66's picture

Only makes sense to people who keep up with China. Otherwise its just a gory angry rabbit cartoon.


BTW the video is huge in China, the censors took it down after it was up for a few days there

Thu, 01/27/2011 - 15:53 | 910274 hedgeless_horseman
hedgeless_horseman's picture

Following the release of the yesterday's revised CBO projections, we, together with anyone with half a brain, were stunned by the ridiculous assumption that somehow the US government can grow its revenue by 50% (!) in the span of 3 years. Since absent a wholesale increase in taxes, which won't happen ahead of the Obama presidential elections, this has a snowball's chance in happening, the only recourse to the government is to cut spending. But where? Most major governmental expenditures are non-discretionary, yet spending has to be cut

I ran this through Google translator and this was the output:

The USA is fucked.

Thu, 01/27/2011 - 15:57 | 910290 EscapeKey
EscapeKey's picture

I predict the US will grow her revenue by 200% over the next 3 years.

In nominal terms, of course.

Thu, 01/27/2011 - 20:47 | 911506 Hephasteus
Hephasteus's picture

Then you won't be able to afford any noms in nominal terms. Is that like nondenominziation.

Thu, 01/27/2011 - 15:54 | 910279 Yen Cross
Yen Cross's picture

 Look @ Amgen. Bobbing and weaving through the 56-58 spike range

Thu, 01/27/2011 - 15:55 | 910281 6 String
6 String's picture

Well, I think it's all a mute point since we're in a fiscal trap (a term that will soon become far larger than deleveraging during the financial melt-down). In any case, I wouldn't short the 100% derived from Govt spending companies. Unless, for e.g., you thought we can do away with prisons altogether.

Thu, 01/27/2011 - 16:09 | 910332 Jasper M
Jasper M's picture

We can demonstrably do with a lot less of them, as the rest of the world does. oOr as California was forced to do.

Fri, 01/28/2011 - 08:49 | 912416 blindfaith
blindfaith's picture

CC of America is bankrupting California along with the 'law enforcement' union.  This is not my opinion, this is from the legislators and Arnold.

Thu, 01/27/2011 - 15:56 | 910287 Yen Cross
Yen Cross's picture

 I'm just going to load up on Citi.

Thu, 01/27/2011 - 15:57 | 910289 mynhair
mynhair's picture

Scratch FRPT.  The klowns will need all the protection they can get.

Thu, 01/27/2011 - 16:02 | 910296 whatz that smell
whatz that smell's picture


          parse headline: Presenting The Companies Most Exposed

To A S[lowdow]n In [Go]vernment [Spend]ing;

                   result: buy dow;


Thu, 01/27/2011 - 16:01 | 910303 Yen Cross
Yen Cross's picture

It's all ball bearings these days. Gotta love Mr. Chase

Thu, 01/27/2011 - 16:02 | 910308 Alcoholic Nativ...
Alcoholic Native American's picture

In other news, Al-Qaeda said to be the number 1 job creator in the U.S.

Thu, 01/27/2011 - 16:06 | 910319 slewie the pi-rat
slewie the pi-rat's picture

$trillion$ for healthcare.

zero for defense. 

these "categories" {industrial, tech, consumer, & health} seem vanilla.

the whole idea that these revenooo,000s may be "at risk" due to fiscal prudence is kinda cute, tho.

some may be postulating other scenariooo,000s.

reflation, e.g.


Thu, 01/27/2011 - 16:20 | 910378 Black Forest
Black Forest's picture

zero for defense.

I see LMT and GD and ...

Thu, 01/27/2011 - 17:50 | 910825 JW n FL
JW n FL's picture

when someone says...


Trillion, healthcare...


0 defense...


They really are saying a lot, about themselves.

Thu, 01/27/2011 - 19:53 | 911322 Ludwig Van
Ludwig Van's picture


"$trillion$ for healthcare"

...with the largest portion of the total revenue stream represented by health care *insurers.*


Thu, 01/27/2011 - 16:07 | 910323 thepigman
thepigman's picture

Where are the POMO zombie TBTF banks?
Hell... no POMO, no ramp, no income.

Thu, 01/27/2011 - 16:10 | 910335 thepigman
thepigman's picture

Someone tell me a good lie about their

loan growth. Wanker?

Thu, 01/27/2011 - 16:08 | 910324 bbucks
bbucks's picture

Capitalism????  HAHAHA!  This is fascism plain and simple.  Mussolini would be proud. 

Thu, 01/27/2011 - 16:40 | 910469 buzzsaw99
buzzsaw99's picture

Mussolini was a piker.

Thu, 01/27/2011 - 16:08 | 910326 savagegoose
savagegoose's picture

if i type gubmint into a spell checker it selects gunpoint! as correct spelling

Thu, 01/27/2011 - 16:16 | 910365 slewie the pi-rat
slewie the pi-rat's picture

try "goobermint"

Thu, 01/27/2011 - 16:11 | 910341 thepigman
thepigman's picture

Fucking Japan, bitchez.

Thu, 01/27/2011 - 16:13 | 910356 thepigman
thepigman's picture

cept for CAT, of course. diligently building

ghost cities in China. lol

Fri, 01/28/2011 - 01:56 | 912145 CitizenPete
CitizenPete's picture

And supporting Zionism, one Palestinian house at a time.

Thu, 01/27/2011 - 16:12 | 910346 irishgurl4
irishgurl4's picture

Oh hell, my company is on that last list ...

Thu, 01/27/2011 - 16:15 | 910351 LehmanRefugee
LehmanRefugee's picture

I did this analysis last year where I examined the possibility of going short a basket of defense contractors where the thesis was that hard fiscal times over the next few years will be bad for their business. Boy I am happy that I never did that trade. These stocks are up significantly from 9 months ago. The problem here is that these programs never get cut. Take C-17, F-22, Marine EFV even when the Pentagon says it doesn't need or want these fancy toys, Congress keeps appropriating money to keep the programs open. Also, most contractors are now so diversified that actual procurement of hardware is less than half of their business. They make their money by providing contract employees to the Govt and managing these programs. Here is a statistic that blew my mind. The federal government for all it's gloat has 2M federal workers. Can anyone guess how many off the book contract workers does the government have? The answer is that the government itself is unable to track it but at last count there were 12M of them. This is a game that has been played for too long now where government has been paying primarily large defense contractors to hire people to do essential government functions. It's a win win. These contractors charge the govt 2-3x what it would pay a direct hire at the same time the government can show congress that there has been very little growth in the federal work force.


If someone wants to play the fiscal theme, I think short treasury is a better way to do it.

Thu, 01/27/2011 - 17:48 | 910819 6 String
6 String's picture

This is great information, Lehman. Thanks for sharing. This is the problem, eh? I mean, really. If the government really gets down to business we'll be looking at what for u6, or even u3, employment?

While this is rather small anecdotal evidence, it's a vision into how the real economy would look if the life-support (deficit spending) was actually taken off. The economy, no doubt, would go the way of AMZN afterhours.

Which, of course, is impossible. Because the U.S. would then have to admit there's no way to pay off the debts and default would happen sooner, rather than the kick the can down the road later approach we're on.

Thu, 01/27/2011 - 18:18 | 910952 the rookie cynic
the rookie cynic's picture

Inflating away the debts via monetary easing is the most politically expedient option. Remains to be seen if it can be done without a currency failure. The politicos will kick the can down the road and will only respond after a crisis. By then it will be too late to fix anything, however.  Some combination of defaults, spending cuts, and phoney-fication of the dollar will ensue. None of it pretty. T-bills might go up in price for a few months here and there, but I don't see anything on the horizon to dissuade me from the opinion that T-bills are no "the new and improved toxic asset." Full-tilt TLT.

Thu, 01/27/2011 - 19:33 | 911245 Devore
Devore's picture

Exactly, much ado about nothing.

The problem is these programs never get cut. What will get cut, are the programs that give money/services to the little people. These gigantic contractors will see no material changes.

Thu, 01/27/2011 - 16:13 | 910354 cougar_w
cougar_w's picture

I think this is backwards. The companies with the most gov revenues perhaps also have the greater lobbying effort going on. They are therefore unlikely to be cut, esp if they have large market caps. Smaller companies with large gov sales (by percent) might get the ax, but if so they are too small to worry about then.

Thu, 01/27/2011 - 16:19 | 910372 LehmanRefugee
LehmanRefugee's picture

yeah agreed. That has been my experience. see my post above. Short of an armageddon scenario (which might eventually happen but not in our life times) don't count on spending cuts.

Thu, 01/27/2011 - 16:14 | 910358 ThirdCoastSurfer
ThirdCoastSurfer's picture

No Housing?

DR Horton reported a loss of $20.4 million,  reporting  sales of 3,363. 

 3,000 * $10,000 = $30 million.  

The average new sales home price in Texas is $395,000 while the overall average sales price of all homes is $153,990.

Lookout Mexico, here we come.  

While there's a lot of talk about gun purchases, if you're rich, like in Mexico, now would also be a good time to buy or maintain: a high quality generator, a water filtration system, a security system and a Range Rover or other such vehicle not susceptible to bad terrain like permanent pot holes. 

Thu, 01/27/2011 - 16:16 | 910363 thepigman
thepigman's picture

Oh gee, emperor has no goddamn

clothes...what a friggin surprise.

Thu, 01/27/2011 - 16:19 | 910374 thepigman
thepigman's picture

bernanke will pay you a 30 aggregate p/e for

your shitty equity. What a nitwit. They

taught him nothing at Princeton and


Thu, 01/27/2011 - 16:21 | 910380 thepigman
thepigman's picture

Banksters will fuck him.

Thu, 01/27/2011 - 16:22 | 910386 thepigman
thepigman's picture

He doesn't get this:)

Thu, 01/27/2011 - 16:25 | 910399 slewie the pi-rat
slewie the pi-rat's picture


but hanky pankie taught him well:

throw a 'tarp' over it!

Thu, 01/27/2011 - 17:53 | 910842 JW n FL
JW n FL's picture


Thu, 01/27/2011 - 16:21 | 910384 Salinger
Salinger's picture

WellPoint CfO, Wayne Deveydt on Bloomberg just now

ObamaCare  will be good for our top line and our bottom line as we will have more healthy bodies in the pool - scale matters


the only surprise for me was how candid he was

Thu, 01/27/2011 - 16:22 | 910385 Salinger
Salinger's picture


Thu, 01/27/2011 - 16:22 | 910387 ShankyS
ShankyS's picture

I am long CXW, looking at is a down payment on a future residence.

Thu, 01/27/2011 - 16:25 | 910401 thepigman
thepigman's picture

hey shanky, when is the

crash of this monstrosity?

It's overdue:)

Thu, 01/27/2011 - 16:26 | 910404 thepigman
thepigman's picture

it's like laughable....

as in dot com era

Thu, 01/27/2011 - 16:29 | 910418 thepigman
thepigman's picture

nobody left to one cares


Thu, 01/27/2011 - 16:30 | 910427 thepigman
thepigman's picture

Japan, bitchez

Thu, 01/27/2011 - 16:39 | 910464 ShankyS
ShankyS's picture

Who the heck knows? If you read the blog, we're just waiting on the fed to pull liquidity or for "the" event to happen theat they can't ignore. BS is all it is. Very frustrating watching a bunch of self absorbed mofos destroy your country for their benefit.

We should be close to some sort of top. I'll say that when "the" top is in evryone will know it. Should be painfully obvious.


Konichiwa bitchez!

Thu, 01/27/2011 - 16:50 | 910520 thepigman
thepigman's picture

Geez, it's sad to come to this. Bernank

manipulation and bs to hide the weakness.

I never thought they would just bullshit


Thu, 01/27/2011 - 16:32 | 910435 NOTW777
NOTW777's picture

dont worry

NFLX +28; a team of netflix reps are on their way to the middle east

Thu, 01/27/2011 - 16:32 | 910436 midtowng
midtowng's picture

Corporate welfare will be the last thing that gets cut. We'll sacrifice the elderly, the poor, the sick, and our veterans before we cut the welfare for corporations.

Thu, 01/27/2011 - 16:38 | 910462 EventHorizon
EventHorizon's picture

Exactly. It's all about nominal terms.  This statement is most valuable as a prognostication about our monetary policy over the next two years.

Thu, 01/27/2011 - 17:11 | 910613 Shakes
Shakes's picture


I've been reading this site for a good long while, but this is one of the few posts where I thought I have some expertise to share with the rest of you.

Gov't contractors ( GCs like CUB, CAI, SAI, LMT, NG, etc) have interesting investment parameters that people outside of the contractor community are not aware of. Gov't contracts are of course the lifeblood of these companies, but each contract has its own features that impact cash flow. In many ways, USG Contractors are nothing more than the cash flows of their annual contracts.

Obviously GC's are more exposed to political machinations, but unlike most commercial sector companies (except for banks) they have an extremely effective approach to preserving revenues via political maneuvering. Large Systems Integrators (LSIs like LMT/GD/NG) plan their manufacturing facilities for programs like JSF/EFV/DDX/etc on where key Congress-creatures are from. No other industry does this, but it is useful to preserve very valuable programs. LSIs are also forced to incorporate "small businesses" into their teaming strategy, not for capability necessarily, but for various congressionally mandated set-aside programs. Study the "success" of Alaskan Native Corporations and ALL the defense contractors in the late John Murtha's district.

There is also the factor that there are two fundamental types of cash-flow streams for companies like these: supplemental and programmed $. Supplemental is for the non-POM-ed events like the wars in Iraq and AFG. The Programmed $ are for large programs that are decades in the making. Thus steady cash flows.

Be aware that certain companies focus on supplemental spending (CAI, DCP, etc) that is appropriated every year (we hope) and many others have a greater focus on Programmed $ that are appropriated every two years.

I hope this helps, and as gov't contracting becomes a greater % of USG spending, I think it is something to understand as well as you can.

-- Shakes

Thu, 01/27/2011 - 21:01 | 911560 Ludwig Van
Ludwig Van's picture


Nice overview. Thanks, Shakes.


Thu, 01/27/2011 - 23:39 | 911952 RockyRacoon
RockyRacoon's picture

Thanks for the sound reporting.   More of this sort of thing is needed.

Thu, 01/27/2011 - 23:51 | 911975 MrSteve
MrSteve's picture

Before front running what used to be called "a peace dividend", note that Stuxnet only set back the Persians' uranium enrichment program, it didn't kill it. The carrier battle groups off Korea, Taiwan and the Straits of Hormuz need some of these contractors to keep the caissons rolling along. Excuse the mixed metaphor, but few things are straightforward anymore.

Thu, 01/27/2011 - 19:35 | 911262 alexromanl
alexromanl's picture

Short defense and go long Russell 2000, there is no way that defense companies escape the cuts.

Thu, 01/27/2011 - 22:05 | 911709 wkwillis
wkwillis's picture

I would be carefull of shorting defence companies, because if the dollar collapses;

1. The US will be the low cost manufacturer for everything.

2. The rest of the world will be desperate for something to spend their devalued dollars on before they go away completely.

3. The rest of the world will be living in a much less stable political environment without the American superpower keeping a lid on things. 

Thu, 01/27/2011 - 22:09 | 911714 PalmiticGlycerin
PalmiticGlycerin's picture

Now trace the ownership/shareholder positions in those companies.... you get the idea.

Do NOT follow this link or you will be banned from the site!