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On December 12, U.S. President Elect Donald Trump took to Twitter to rail against Lockheed Martin for the perceived waste of its next-gen fighter jet program. In his tweet, Trump said:

News of the tweet consumed CNBC and other news outlets for much of the day, and Lockheed’s stock tumbled in the immediate aftermath of the comments before rallying to close down 2.5% on the day.

Trump’s comments on the program's cost were made within the context of the government spending that his campaign promised to curtail, and as a heavy government supplier, Lockheed was an expected target. In fact, using FactSet’s Supply Chain data we can see that Lockheed receives a whopping 78% of its revenue from the U.S. government.


Which Targets Might Be Next?

Given Trump’s predilection to delivering his thoughts directly to his followers and his promises to curb government waste, the Lockheed Martin tweets could be foreshadowing of a larger pattern of Trump-induced market reactions. To predict what other stocks could be the subject of Trump’s tweets moving forward, we found those that count the U.S. Government as their largest customers.

Using FactSet’s Revere data, we can see there are quite a few companies with huge exposures to the U.S. government; in fact, 27 companies attribute more than 80% of their revenue to the federal government. A further 250 companies generate a portion of their revenue from the U.S. Government. In addition, searching relationships data uncovers at least 35 companies with some level of connection to the F-35 program Trump mentioned.

Looking at the motivations that prompted Trump’s tweets about Lockheed, companies that could be targeted by the President-elect’s Twitter-based market shocks would likely be others in the aerospace or defense industry with a lion’s share of their revenues coming from government contracts. Mantech International Corp, Booz Allen Hamilton Holding Corp, Huntington Ingalls Industries Inc., and KEYW Holding Corp are all defense companies that derive over 90% of revenue from government sales and programs. That being said, it’s important to note that Trump’s comments were prompted by a specific program, rather than the percentage of revenue Lockheed Martin receives from the U.S. government.

Despite the obvious connection between government spending and the Aerospace & Defense industries, many of the organizations identified were not part of military program spending. Healthcare was another common area of government spending. Of the eight companies that generate 100% of their revenues from the government, seven are healthcare. 

While no companies are necessarily safe from the unabated feedback of a socially connected world, with an agenda that seeks to trim that fat from government spending and a digital pulpit at his disposal, this is unlikely to be the last time Trump moves the market in under 140 characters.

Courtesy of Factset

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Top 10 Federal Contractors

When I came across this list of the top 10 Federal contractors, not only were they all defense contractors, it also gave a eyes-glance breakdown of what the U.S. purchases from each.  Nice if you're an investor.  I find it interesting that the F35 has been in production for 14+ years.  Seriously?  By the time we get one that works, it'll be time to fund development of a new one.  From Nationalpriorities:

10. Huntington Ingalls Industries, $4.7 billion.

Huntington Ingalls describes itself as “America’s largest military shipbuilding company.”

9. BAE Systems, $5.0 billion.

BAE Systems traffics in “defence, aerospace and security solutions” (and yes, they are a British company with significant operations in the U.S.), with products ranging from amphibious combat vehicles to “hyper velocity projectiles.”

8.  L-3 Communications Holdings, $5.8 billion.

L-3 bills itself as a “prime contractor in aerospace and national security solutions.”  Its products include explosive detection systems and holographic weapons sights, among others.

7. United Technologies Corporation, $6.0 billion.

UTC is a parent company for defense contractors Pratt & Whitney, UTC Aerospace Systems, and Sikorsky. Pratt & Whitney is the maker of the F-35 jet fighter engine, among others, while Sikorsky is the maker of the Black Hawk helicopter.

6. McKesson Corporation, $6.2 billion.

On its face, health care solutions company McKesson appears to be the lone non-defense contractor among the group. But even McKesson would not be where it is without our country’s penchant for Pentagon spending:  it gets $4.2 billion in contracts from Veterans’ Affairs, and an additional $1.6 billion directly from the Department of Defense.

5. Northrop Grumman Corporation, $10.3 billion.

Northrop Grumman bills itself as providing “unmanned systems, cybersecurity, C4ISR, and security” solutions. Northrop Grumman makes the Air Force’s A-10 Thunderbolt II (also known as the “Warthog”), among others.

4. Raytheon Company, $12.6 billion.

Raytheon’s business includes missile defense, electronic warfare, precision weapons, and more, including Tomahawk and Patriot missiles.

3. General Dynamics Corporation, $15.4 billion.

General Dynamics provides aerospace, combat systems, marine systems, and more, including Abrams tanks, MRAPs (Mine-Resistant Ambush Protected) vehicles, and nuclear submarines through its Electric Boat division.

2. Boeing, $19.6 billion.

Boeing specializes in fighter jets, rotorcraft, advanced weapons, and missile defense, including Minuteman missiles, the V-22 Osprey aircraft, and the F-15 aircraft.

1. Lockheed Martin, $32.2 billion.

That’s 7% of all federal contracts, and the equivalent of three percent of discretionary spending in 2014, to just one company.

That company saw over $5.5 billion in profit, and paid its CEO more than $70 million in 2014. And the $32 billion it received from the U.S. government made up more than seventy percent of its total sales.

And Lockheed’s signature product? The F-35 jet fighter, which despite being in development since 2001, and being billions of dollars over budget, is not yet combat ready. The F-35’s top initial selling point?


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