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Unexpected Government Receivables as Predictors of Earnings Performance

Companies and Markets

By Martin Tsanov  |  January 12, 2023

For some traditional suppliers, government receivables can be significantand thus strong indicators of earnings performance. Similarly, earnings surprise for companies with a sizable increase in new forward-looking receivables could be substantial.

Investors perceive companies with a high proportion of government revenue as more stable and predictable, often valuing them with a higher earnings multiple compared to peers. The consistency of government contracts is especially valuable in a recessionary environment.

 U.S. and EU-15 Contract Awards

The TenderAlpha global government contracting data available through the Open:FactSet Marketplace monitors contract awards in more than 40 countries across North America, the EU, and APAC and accounts for nearly $15 trillion of government spending since 2010 (Figure 1). Here are the highlights:

  • Nearly 40% of the contracts in developed countries are awarded to less than 8,000 publicly-listed companies

  • Significant contracts are highly concentrated among large public suppliers in the U.S. and EU-15 countries

  • U.S. federal procurement alone accounts for more than $500 billion yearly, on average (Figure 1), with contracting in a few major sectors including defense, healthcare, energy, IT, cybersecurity, and professional services heavily skewed toward large suppliers
Figure 1


Calculating Forward-Looking Receivables from Government Contracting

The U.S. federal procurement system provides accurate forward-looking receivables projections. Although smaller in number, multi-transaction contracts account for nearly 90% of the total USD value of annual federal awards (Figures 2 and 3). That’s nearly $5 trillion from 2010 to today.

Across executed and newly announced contracts, the forward-looking receivables data also offers a few steps of aggregation that are not available from institutional, media, or company announcements.


Signaling Unexpected Government Receivables

To spot earnings surprises, we developed the unexpected government receivables (UGR) measure. The UGR is calculated as follows:

  1. At the end of each month, we scale the forward-looking government receivables for each stock by its market capitalization and arrive at scaled government receivables (SGR)

  2. The UGR is the normalized SGR, determined by subtracting the previous year’s average SGR and dividing by the previous year’s standard deviation

There are three earnings surprise factors behind the UGR measure:

  • Traditional government suppliers: Sudden or gradual increases of USD receivables among suppliers heavily dependent on government sales as compared to the backward-looking USD figures

  • Large awards material to small-company revenue: The company could be completely new to the market or have insignificant backward-looking USD obligations as compared to higher forward-looking USD figures

  • Large companies as new entrants into the government market: Sudden or gradual increases in forward-looking USD values

Insights From Backtesting

We scale forward-looking government receivables by accounting for variables in annual financial statements for a stock. This helps prevent portfolio turnover from sharp swings in the market that may be unrelated to the stocks’ receivables. Because annual accounting data is published once annually, we subtract only the mean scaled government receivables over the last year.

Panel A below shows backtesting results for a trading strategy that goes long stocks with high unexpected government receivables and short stocks with no government receivables. The table includes average returns (r) and alphas on five different factor models (α’s) for portfolios based on UGRs as follows:

  • Portfolio 1 firms with negative 𝑈𝐺𝑅

  • Portfolio 2 firms with 𝑈𝐺𝑅 = 0

  • Portfolio 3 firms with positive 𝑈𝐺𝑅

  • Portfolio 3 – 1 goes long stocks in portfolio 3 and short stocks in portfolio 1

Stocks are value-weighted within portfolios, and the portfolio holdings are rebalanced at the end of each month. T-statistics are reported in brackets. The sample includes all stocks in the Russell 1000 index from January 2013 to December 2020.


In all cases of backtesting, the strategies performed extremely well with annualized Sharpe ratios between 0.77 and 1.27. That range spans between double and just over triple the 0.35 to 0.40 historical Sharpe ratio of the market portfolio.

In all portfolios, alphas are significant, ranging between 3.4% and 7.1% per year, depending on the strategy and the factor model.

We believe comparing the UGR metric to both baseline SGR and market expectations provides the most benefit. In essence, there is no alpha to be found in a high-UGR company for which the market has already priced in expectations for higher revenue. The ideal is high UGR with revenue assumptions that reflect the baseline SGR score.

While the outperformance in one quarter will change the company’s financial situation marginally, the effect should accumulate over the long term. A consistently high UGR score could imply the company’s competitive position is improving relative to peers.          

The UGR metric may also be used on a standalone basis, but it fits best with holistic company valuations. Overlapping the UGR score with data on research and development expenses, capital expenditures and personnel costs may lead to valuable insights into the company’s direction. For example, it may score high on the SGR scale simply by completing an acquisition and inorganically boosting sales. Conversely, a competitor might be superior if it ranks lower on the SGR scale but has a superior organic sales growth rate.


The backtesting results indicate government contract awards have a positive effect on stock performance, suggesting that sizable increases in forward-looking receivables could be material in forecasting earnings. However, further research is needed.

Ranking companies on the UGR scale allows investors to factor in expected positive earnings surprises. Furthermore, consistent outperformance on UGR relative to peers should imply an improving competitive position, making a case for investors to incorporate UGR into their long-term decisions.


This blog post has been written by a third-party contributor and does not necessarily reflect the opinion of FactSet. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

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Martin Tsanov

Co-Founder, Bizportal

Mr. Martin Tsanov is the co-founder of BizPortal and a Product Director at TenderAlpha.com as the only global government procurement data product specifically designated for investment analysis. In this role, Mr. Tsanov is responsible for both product and business development with a special focus on quantitative and ESG research applications of the contract awards data which is also available through the Open:FactSet Marketplace. He has more than 10 years of professional experience combining exposure to investment and capital markets research with working in the public and think tank sectors in the U.S. and Europe. Mr. Tsanov earned an MSc in Political Economy from the London School of Economics and a BA in Political Science from Whittier College in Los Angeles, California.


The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.