13 Stocks to Avoid If Defense Spending Slows

l3 communications fa-18 jet fighter

Everyone in Washington’s talking about budget cuts — especially defense (NYSE:PPA) cuts.

But if the government decides to significantly cut spending for federal contracts, what’s going to happen to the companies that rely on huge sums of government cash?

There’s a lot of money sloshing around.  The US Department of Defense spent $367.1 billion on contractors in the 2010 fiscal year, more than 14 times as much as the Department of Energy (NYSE:XLE), which was next highest with $25.7 billion.

Here’s a look at the top 15 federal government contractors — ranked by dollars obligated from all government departments — in the 2010 fiscal year, according to the numbers provided by the Federal Procurement Data System.

#13 URS

#14 URS

Image: US Army Chemical Materials Agency

Value of government contracts (2010): $3.9 billion
Total revenue (2010): $9.2 billion

Industry: Engineering & Construction

URS (NYSE:URS) does project design, planning, construction, and management for governments across the world, and the US is its biggest client.  The company is under contract to destroy over 90% of the US chemical stockpile.

The latest federal government contract the company won was a maintenance support services deal with the Department of Defense (for the US Marine Corps) worth up to $101 million.

Source: URS Corp.

#12 CSC

#13 CSC

Image: Glassdoor.com

Value of government contracts (2010): $4.4 billion
Total revenue (2010): $19.2 billion

Industry: IT Services

Computer Sciences Corp. (NYSE:CSC) does everything from cyber-security to customer relationship management.  They’re essentially computer problem-solvers, with big name private sector clients in finance, manufacturing, energy, and tech.

CSC has done extensive work for the Department of Defense, like developing biochemical vaccine defense systems and providing digital forensics training.

Source: CSC

#11 McKesson

#12 McKesson

Image: AP

Value of government contracts (2010): $4.6 billion
Total revenue (2010): $108.7 billion

Industry: Health Care Services

McKesson (NYSE:MCK) is the largest pharmaceutical distributor in North America.  The company also does IT work for medical facilities and has a massive hospital tech presence all over the continent.

The company scored a huge $1.1 billion contract in February to aid the TRICARE Pharmacy Program, which is a pharmacy benefit for US military personnel worldwide.

Source: McKesson

#10 BAE

#10 BAE

BAE’s Astute-class nuclear submarine

Image: BAE

Value of government contracts (2010): $6.6 billion
Total revenue (2010): $36.1 billion

Industry: Aerospace & Defense

BAE is a gigantic UK-based military contractor that develops aircraft and defense electronics.  They mostly do business with the US, UK, Australia, India, and Saudi Arabia.

The company got itself in huge trouble in a 2010 bribery case, pleading guilty to conspiracy to defraud the US government.  It had to pay the US Department of Justice and the UK’s Serious Fraud Office $400 million in criminal fines.

Source: BAE Systems

#9 SAIC

#9 SAIC

SAIC’s tsunami detection buoy

Image: SAIC

Value of government contracts (2010): $6.8 billion
Total revenue (2010): $11.1 billion

Industry: Engineering & Technology

SAIC (NYSE:SAI) is active in US national security, providing engineering services to both the Department of Defense and the Department of Homeland Security.  It also dabbles in energy, health, and infrastructure industries.

NASA selected the company in May to support mission communications for the agency.  The maximum potential value of the contract is $1.3 billion.

Source: SAIC

#8 Oshkosh Corp.

#8 Oshkosh Corp.

Image: Wikipedia

Value of government contracts (2010): $7.2 billion
Total revenue (2010): $9.8 billion

Industry: Automotive

Oshkosh (NYSE:OSK) designs and manufactures specialty trucks, and it sells them in 130 countries across the globe.  It’s the biggest supplier of heavy payload transportation trucks to both the US and British armies.

It makes a plethora of different military vehicles for them, including tactical trucks, command vehicles, and massive equipment transporters.

Source: Oshkosh Corp.

#7 L-3 Communications

#7 L-3 Communications

L-3’s F/A-18 Tactical Operational Flight Trainer

Image: L-3 Link Simulation and Training

Value of government contracts (2010): $7.4 billion
Total revenue (2010): $15.7 billion

Industry: Communications

Primarily a defense contractor, L-3 specializes in secure communications systems, intelligence, surveillance, reconnaissance, and training and simulation.

L-3 (NYSE:LLL) won another big government contract last November, worth a maximum potential value of $976 million.  The company will be overseeing aircrew and maintenance training systems for the Air Force’s C-17, a gigantic military transport aircraft.

Source: L-3 Communications

#6 United Technologies

#6 United Technologies

Sikorsky’s UH-60 Black Hawk helicopter

Image: Wikipedia

Value of government contracts (2010): $7.7 billion
Total revenue (2010): $54.3 billion

Industry: Building & Aerospace

UTC (NYSE:UTX) is a huge conglomerate with notable holdings like helicopter manufacturer Sikorsky, aircraft engine maker Pratt & Whitney, and aerospace firm Hamilton Sundstrand.  It also owns Carrier, the world’s largest heating, ventilation, and air conditioning company, and Otis elevators.

Sikorsky is particularly involved in government contracting, making choppers for countries across the world including Canada, Turkey, Saudi Arabia, Thailand, and India.  Its most well-known creation is the UH-60 Black Hawk utility helicopter.

Source: United Technologies

#5 Raytheon

#5 Raytheon

Raytheon’s Phalanx CIWS anti-ship missile system

Image: ASU.edu

Value of government contracts (2010): $15.2 billion
Total revenue (2010): $25.2 billion

Industry: Aerospace & Defense

Raytheon (NYSE:RTN) is the world’s largest producer of guided missiles. It also designs and makes air and missile defense systems.

The company is currently tussling with Lockheed Martin for a $5 billion contract from the US Army Aviation and Missile Command to build more than 33,000 missiles for the military.

Source: Raytheon

#4 General Dynamics

#4 General Dynamics

General Dynamics Abrams M1A1 Main Battle Tank

Image: Wikipedia

Value of government contracts (2010): $15.2 billion
Total revenue (2010): $32.5 billion

Industry: Defense

General Dynamics (NYSE:GD) manufactures all kinds of military combat units and systems, including tanks, ships, artillery, and many types of ammunition.

One of its most famous products is the Abrams M1A2 Main Battle Tank and its predecessors — the M1 and M1A1 — which saw extensive service for the US Army during the Gulf War and the Iraq War.

Source: General Dynamics

#3 Northrop Grumman

#3 Northrop Grumman

Northrop Grumman’s B2-Spirit stealth bomber

Image: Wikipedia

Value of government contracts (2010): $16.8 billion
Total revenue (2010): $34.8 billion

Industry: Aerospace & Defense

Northrop Grumman (NYSE:NOC) was the largest builder of naval vessels in the world until it spun off its shipbuilding business in March.  Its former subsidiaries manufactured all US aircraft carriers, including the in-service Nimitz-class supercarriers and the new Gerald R. Ford-class.

Now the company focuses on its aerospace projects and electronics systems.  Northrop manufactured the legendary B2-Spirit stealth bomber with Boeing, and the fleet of 20 is still in service today.

Source: Northrop Grumman

#2 Boeing

#2 Boeing

Illustration of Boeing’s NewGen Tanker

Image: Boeing

Value of government contracts (2010): $19.5 billion
Total revenue (2010): $63.3 billion

Industry: Aerospace & Defense

One of the long-time titans of aerospace manufacturing, Boeing’s (NYSE:BA) aircrafts and satellites can be found throughout the US military.  Boeing is also deeply embedded in NASA’s work, helping operate both the Space Shuttle and the International Space Station.

Boeing won big in February when they were awarded a $35 billion contract to make 179 aerial fueling tankers for the US Air Force.

Source: Boeing

#1 Lockheed Martin

#1 Lockheed Martin

Lockheed Martin’s F-35 Lightning II multi-role fighter

Image: Lockheed Martin

Value of government contracts (2010): $35.8 billion
Total revenue (2010): $45.8 billion

Industry: Aerospace & Defense

Lockheed Martin (NYSE:LMT) is by far the leading contractor to the US government and works with dozens of different departments and agencies, though the bulk of its big contracts are with the Department of Defense.

Between its four business units — Aeronautics, Electronic Systems, Information Systems, and Space Systems — the company gobbled up around 6.8% of the total dollars spent on contractors by the US government in 2010.

Source: FPDS

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