Al Root

Defense Secretary Pete Hegseth announced more defense cuts. This time, the news isn't hurting shares of contractors -- it's slamming consultant stocks.

Secretary Hegseth announced and signed an order to eliminate $580 million in contracts and grants on Thursday afternoon. The items listed ranged from HR programs that were over budgeted to money once allocated for green and DEI initiatives. Contracts for Gartner and McKinsey were mentioned by name. Hegseth said that these cuts bring the department's total savings to $800 million, with more to come "as DoD partners with DOGE." That amounts to about 0.1% of annual U.S. military spending.

DOGE, or the Department of Government Efficiency, is led by Elon Musk and has been charged with rooting out government fraud and waste.

Shares of Booz Allen Hamilton were down 0.9% in midday trading Friday. Leidos shares were down 1.1%. CACI stock was off 1.3%. Gartner shares were up 0.6%, but started the day in the red.

The broader market wasn't helping, either. The S&P 500 and Dow Jones Industrial Average were down 0.8% and 0.7% in Friday trading.

Some of the damage was done Thursday afternoon, however, after Hegseth made the announcement. Through midday trading Friday, shares of Booz Allen, Leidos, CACI, and Gartner were down about 6% on average over the past two days.

The stocks have also been relatively weak since the Nov. 5 election. Through early trading Friday, CACI, Booz Allen, and Leidos stocks were down an average of almost 40%. Gartner shares were off closer to 20%.

Business mix is the likely reason for the reactions. Booz Allen and CAIC get almost all their revenue from the U.S. government or government-related entities. The number for Leidos is closer to 90%. Gartner has about $1 billion in "outstanding revenue contracts" with the U.S. government. That is how it discloses the relationship. Gartner is expected to generate about $6.6 billion in 2025 revenue.

Shares of defense contractors Lockheed Martin and Northrop Grumman were down 6.8% and 0.4%, respectively. However, Thursday's announcement didn't appear to have impacted them. The losses came after the Defense Department said it awarded Boeing a contract to build a sixth-generation jet fighter. Through midday trading, the stocks have lost about 19% and 5%, respectively, since the Nov. 5 election.

Military spending and DOGE's cost-cutting efforts should be watch items for investors.

Write to Al Root at allen.root@dowjones.com

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March 21, 2025 12:10 ET (16:10 GMT)

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