The Top 10 Companies Most Affected by Potential Budget Cuts

The recession isn't over yet, a point that sovereign debt debates around the world make painfully clear. As the countries involved come together to discuss solutions, the thread of debates circulate around a common theme: finding a balance between fiscal austerity (budget cuts and/or higher taxes) and steadily ballooning entitlement programs like public health care and social security.

To give the U.S. debt crisis some perspective, southern Europe is currently tangled up in a convoluted situation that involves many national governments, their central banks and treasuries, the IMF, and global investors. By comparison, resolving the debt ceiling issue in the U.S. should be a cakewalk.

For one, Congress has historically been very quick to raise the debt ceiling -- and, given inflation and the growth of the U.S. economy and population, it should be expected to rise in nominal terms over time.

Another considerable point brought up by politicians is that the U.S. is not allowed to default on its debts, according to the 14th Amendment of the Constitution:

"The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." (U.S. Constitution, 14th Amendment, Section 4)

Despite the urgency and the seemingly inevitable increase of the debt ceiling, Congress still finds itself at an impasse. This has roiled many stakeholders.

Rating agencies S&P and Moody's have talked about putting the Federal government's impeccable credit rating on watch as the August 2 deadline approaches. Moody's goes one step further and suggests doing away with a debt ceiling altogether -- the U.S. is one of the few countries with a ceiling, and "Congress has in the past raised it often and has not linked it to spending levels." (via Politico)

American corporations are also beginning to weigh in on the debt issue. JP Morgan Chase, Caterpillar, Goldman Sachs, Bank of America, and the U.S. Chamber of Commerce have sent out teams of lobbyists to encourage fiscally conservative Republicans to reconsider their opposition to increasing the debt ceiling, according to Reuters.

At this point in time, it seems that budget cuts and other austerity measures will be part of any budget talks in the near future, according to Rep. Gregory Meeks (D-NY) article on The Hill.

In the case of austerity measures, companies could see a significant portion of their revenue streams dissipate. Goldman Sachs put together a list of companies with over 20% of their revenues linked to government spending (via Business Insider). We list the top 10 below. Do you think any of these companies are in a considerable bind? (Click here to access free, interactive tools to analyze these companies.)

List sorted by percentage of sales to government.

1. Human Genome Sciences (Nasdaq: HGSI  ) : Biotechnology industry with a market cap of $4.40B. Government spending comprises 100% of its sales. Share prices are down 20.55% on the quarter.

2. Granite Construction (NYSE: GVA  ) : Heavy Construction industry with a market cap of $962.14M. Government spending comprises 96% of its sales. Share prices are down 4.34% on the quarter.

3. Harris (NYSE: HRS  ) : Communication Equipment industry with a market cap of $5.41B. Government spending comprises 85% of its sales. Share prices are down 14.57% on the quarter.

4. FLIR Systems (Nasdaq: FLIR  ) : Aerospace/Defense Products & Services industry with a market cap of $4.62B. Government spending comprises 80% of its sales. Share prices are down 12.55% on the quarter.

5. Illumina (Nasdaq: ILMN  ) : Biotechnology industry with a market cap of $8.97B. Government spending comprises 80% of its sales. Share prices are up 8.23% on the quarter.

6. Tetra Tech (Nasdaq: TTEK  ) : Technical Services industry with a market cap of $1.37B. Government spending comprises 71% of its sales. Share prices are down 6.42% on the quarter.

7. Affymetrix (Nasdaq: AFFX  ) : Scientific & Technical Instruments industry with a market cap of $454.72M. Government spending comprises 70% of its sales. Share prices are up 14.77% on the quarter.

8. URS (NYSE: URS  ) : Technical Services industry with a market cap of $3.46B. Government spending comprises 70% of its sales. Share prices are up 0.16% on the quarter.

9. Bruker (Nasdaq: BRKR  ) : Scientific & Technical Instruments industry with a market cap of $3.24B. Government spending comprises 69% of its sales. Share prices are down 1.81% on the quarter.

10. Aeroflex Holding Corp. (NYSE: ARX  ) : Integrated Circuits Semiconductor industry with a market cap of $1.24B. Government spending comprises 50% of its sales. Share prices are down 17.59% on the quarter.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Andrew Dominguez does not own any of the shares mentioned above. Data sourced from Finviz and Business Insider.

Motley Fool newsletter services have recommended buying shares of Illumina. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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