The Department of Government Efficiency (DOGE), spearheaded by Elon Musk under the Trump administration, has emerged as a disruptive force reshaping federal operations and market dynamics. It is framed as a cost-cutting initiative, and its policies have the potential to impact healthcare, and several industries, including the defense sector, making listed companies with government contracts bleed and raising investors’ concerns, writes eToro analyst for Romania, Bogdan Maioreanu.
DOGE efforts to decrease Defense spending are starting to take a toll on defense contractors. Leidos, a company providing defense, civil, and health solutions, lost a $231.9 million contract. The company is estimated to have 87% of its revenues from US government contracts. Its stock price lost almost 4% last week. Kratos, a military drone manufacturer, voiced concerns about the potential loss of some government contracts in its SEC filings as early as February 2024. Last year, Kratos generated $762 million from government clients. Palantir, the 15th most held stock by investors on the eToro platform at the end of last year, initially viewed as a potential casualty, is now considered by many analysts a likely beneficiary, thanks to its central role in AI applied to the public sector. However, its stock price fluctuated since February from a maximum of almost 125 dollars to a minimum close to 76 dollars after rebounding to around 91 dollars at the end of last week.
The mounting pressure from the Trump administration to deeply cut consulting and IT contracts led to the stock price of consulting giants Accenture and Gartner, both heavily exposed to federal business, dropping 6.35% and 7.31% respectively last week. Accenture’s CEO explicitly called DOGE “a potential obstacle to growth” during the earnings call, contributing to the stock’s plunge. Meanwhile, Secretary of Defense Pete Hegseth announced on X his intention to eliminate “unnecessary spending,” directly naming Gartner among the firms whose contracts would be cut.
Meanwhile, the shifting US policy is creating opportunities for competitors across the Atlantic Ocean, in Europe. While the big defense giants like Germany’s Rheinmetall and Hensoldt or the Italian Leonardo have seen impressive price increases this year, several smaller European defense stocks have seen even wilder price movements. French satellite company Eutelsat rose a wild 500% in just a few days under the speculation that the company could become a replacement for Starlink in Ukraine. French mini-cap drone manufacturer Drone Volt has also benefited from rising security concerns, soaring by over 200% in early March. For example, on the eToro platform, positions opened in Eutelsat and Drone Volt jumped by 25 and 18 times respectively in the first two weeks of March compared with February.
But the sector that might see the most dramatic impact of Trump administration policies is healthcare. DOGE’s mandate to slash $500 billion in federal spending is likely to cut Medicaid and Affordable Care Act (ACA) subsidies. Hospitals and clinics reliant on federal reimbursements, like HCA Healthcare, Community Health Systems and other listed companies, might face shrinking margins and operational instability. This new reality might force healthcare companies to go to an aggressive cost-cutting program, using telemedicine and online patient support instead of direct services, adding AI instead of large call centers and outsourcing back-office, IT, cybersecurity and non-essential functions. All these are opportunities for the companies in this field.
DOGE’s impact might be even larger. The healthcare sector relies on the federal government as a direct and indirect major customer for pharmaceuticals, medical devices, diagnostics, and products according to Fitch Ratings. These companies depend on the Food and Drug Administration (FDA) approvals for their new product pipelines. Delays caused by personnel cuts could hurt earnings as patents begin to expire for some companies over the next two years.
All these issues send a clear signal to investors that business vulnerability no longer depends solely on the size of a contract but on the very structure of the business model. Investors should understand where the company revenues are coming from to mitigate those risks or take hold of the opportunities. These changes in how the US Government operates are showing how important the companies’ fundamentals are and that the simple technique of buying the dip might not function in the affected industries or sectors.
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