The world's largest defense contractor has a solid backlog of orders and stable revenue even in a recession, so one bad satellite won't hurt its prospects. By Thomas M. Anderson, Contributing Editor February 15, 2008 It sounds like a job for James Bond. The Pentagon announced February 14 that it will attempt to shoot down a malfunctioning U.S. spy satellite, which is the size of a bus and carries toxic fuel, as it plummets toward Earth. Lockheed Martin, the world's largest military contractor, made the satellite.A rogue satellite produces embarrassing headlines. But for investors, the more relevant news is that Lockheed (symbol LMT) owns several stable businesses with sound prospects for the coming year. As other industries struggle with an economic slowdown, the Bethesda, Md., company receives a stable source of income from multi-year contracts. In fact, it has a $76 billion backlog of business. Many clients prefer to work with a limited number of contractors, especially on sensitive projects involving defense and national security. U.S. government customers accounted for 90% of Lockheed's $41.9 billion in sales last year. The flow of defense contracts will continue to gush for years to come. The Bush administration has proposed $515 billion in defense spending for the federal government's 2009 fiscal year, which begins October 1. That's an increase of 7.5% from fiscal 2008 and includes $184 billion for weapons procurement and development. Advertisement "In the post 9/11 environment, we believe national security issues will trump social causes, keeping the spending at elevated levels," says American Technology Research analyst Peter Arment. Specifically, Arment sees strong contributions to Lockheed's revenue until 2010 and beyond from the U.S. Air Force, which needs to replace its aging jets. The company has received a multi-year contract from the Air Force for 60 F-22 Raptor fighters, which extends production of that aircraft until 2011. Lockheed is expected to deliver 21 F-22 Raptors in 2008. The F-35 Joint Strike Fighter is critical to Lockheed Martin's future. The lifetime value of the company's contract to produce this jet is pegged at whopping $300 billion. Lockheed wants to produce three different versions that use common parts and technology to lower development and maintenance costs for both the company and the military. If successful, the F-35 would replace eight different aircraft models for the U.S. military. Demand for defense electronics and information systems remains strong as the U.S. government pushes to upgrade its communications systems. Arment estimates that these business segments will generate $22 billion in revenue for Lockheed this year and account for 51% of sales. Advertisement And one bum satellite will not diminish Lockheed Martin's space business. Patrick McCarthy, an analyst with investment bank Friedman, Billings and Ramsey, expects Lockheed to win significant contracts for navigation satellites this year. McCarthy rates the stock an "outperform" and gives it a 12-month target price of $120. Lockheed's stock closed February 15 at $105.76. The shares have held up relatively well during the market's recent correction, having fallen just 5.7% since late November. They trade at 14 times the $7.35 per share that analysts expect the company to earn in 2008. "Defense stocks have historically outperformed in an election year, regardless of the outcome, as both parties talk about strong national security policies," Arment says. He rates the stock a "buy" and has a 12-month target price of $129.