Trump admin's move to cut govt spending pose risk to largest contractors

By Josyana Joshua and Ethan M Steinberg

 

The Trump administration’s moves to trim government spending pose a short-term “understated risk” for companies all across the corporate credit market, according to a Barclays Plc analysis.

 

The efforts, led by Elon Musk’s Department of Government Efficiency, have sparked concern about companies with federal contract exposure, analysts led by Dominique Toublan wrote in a note Wednesday.

 

“While the legality and duration of the actions to halt spending remain in question, the prevailing uncertainty is undeniable,” the analysts wrote. “For the time being, the administration’s ‘move fast and break things’ approach could present short-term risks to specific companies and sectors.”

 

 

Investment-grade aerospace and defense firms have the biggest exposure to government contracting — with a weighted average of federal dollars to 2023 revenues of 45 per cent. The industry has more than $200 billion of annual obligations from the US government, Barclays analysts Andrew Keches and Ed Brucker wrote. The defense sector houses some of the largest line items of the federal budget, and given the recent shift toward reviewing many of the programs, it makes the sector one of the most vulnerable. 

 

In the near-term, the sector would see “limited” impacts from large budget cuts, since existing programs are funded through previous budgets. DOGE is seen as a modest risk to some of the prime contractors like Lockheed Martin Corp., RTX Corp., General Dynamics Corp. and Northrop Grumman Corp., according to the note.   

 

Healthcare and pharmaceuticals have the second largest exposure. Distributors such as McKesson Corp. and Cencora Inc. could face disruption, with the analysts noting government spending is related to purchasing for services provided via public programs and for the care of government employees or veterans.

 

A spokesperson for Lockheed Martin directed Bloomberg to a recent comment from its president, Jim Taiclet, who said he welcomes “DOGE’s effort and the administration’s efforts to reduce the bureaucracy.”

 

Geo Group declined to comment. RTX, General Dynamics and Northrop Grumman did not respond to a request for comment. McKesson and Cencora weren’t immediately available for comment. 

 

“Among pharmaceutical companies, we think most of the government transfers are related to the vaccines such as Pfizer’s COVID vaccine and Merck’s HPV and MMR treatments,” the analysts wrote.