U.S. Stocks' Rebound Accelerates on Profit Forecasts By Hilary...

U.S. Stocks' Rebound Accelerates on Profit Forecasts
By Hilary Johnson
Jan. 26 (Bloomberg) --

This week's rebound in U.S. stocks resumed as Caterpillar Inc., Honeywell International Inc. and Lockheed Martin Corp. raised profit forecasts.

The Dow Jones Industrial Average and the Standard & Poor's 500 Index had their biggest gains since fourth-quarter earnings reports began three weeks ago. A government report showing that orders for durable goods rose more than forecast contributed to their advance. Phone companies rallied as sales at AT&T Inc. and Verizon Communications Inc. beat analysts' estimates.

``As investors this year, we have to focus on the durability of corporate-profit growth,'' said Frank Gannon, who helps manage $700 million at AIG SunAmerica Asset Management in Jersey City, New Jersey. ``Within that, you can find a lot of opportunities in the stock market.'' Gannon expects the S&P 500 to climb 14 percent this year.

The S&P 500 rallied 9.15, or 0.7 percent, to 1273.83 in New York, for its biggest advance since Jan. 6 and third gain in the last four days. The Dow average climbed 99.73, or 0.9 percent, to 10,809.47, the biggest rise since Jan. 3. The Nasdaq Composite Index jumped 22.35, or 1 percent, to 2283.

The debut of Chipotle Mexican Grill Inc. contributed to the market's climb. Shares of the restaurant chain doubled on the first day of trading after McDonald's took the company public in a $173 million stock sale.

Microsoft Corp. said after the market closed that profit and sales may beat analysts' predictions this quarter, suggesting today's gains may carry through to tomorrow.

Some 2.07 billion shares changed hands on the New York Stock Exchange, the second-most this year. Eleven stocks rose for every three that fell on the Big Board.

Earnings Performance

Stocks began falling earlier this month as the pace of earnings picked up and companies such as Intel Corp. gave disappointing results or forecasts. The S&P 500 had its biggest one-day loss since 2003 on Jan. 20., and is down 1.6 percent from its four-year high reached Jan. 11.

The profit concern subsided this week as the picture began to brighten with reports from Dow members United Technologies Corp. and McDonald's Corp.

All results were not stellar today. General Motors Corp. shares dropped after the company reported its first annual loss since 1992. Juniper Networks Inc. suffered its worst drop in five years after a sales forecast disappointed and analysts downgraded the shares.

Leading the Dow

Caterpillar and Honeywell were the two biggest gainers in the Dow average.

Caterpillar, the world's No. 1 maker of earth-moving equipment, rose $3.10 to $65.17. The company raised its 2006 per- share profit forecast to $4.65 to $5 from an estimate of $4.52 to $4.91. It expects to continue to be able to charge higher prices for its products. Fourth-quarter profit was $1.20 a share, more than the average Thomson Financial estimate of $1.10. Thomson does not provide Bloomberg News with the parameters of its estimates.

Shares of Honeywell, the world's largest maker of aircraft cockpit controls, added $1.35 to $37.41 after the company said it expects 2006 per-share earnings of $2.40 to $2.50 on greater demand for commercial aircraft. It had previously forecast profit of $2.35 to $2.50 a share.

Lockheed gained $1.98 to $66.99. The world's No. 1 defense company increased its forecast for 2006 earnings to between $4.50 and $4.75 a share, from $4.00 to $4.25. Fourth-quarter profit climbed 53 percent on higher demand for computer services and government satellites.

The Commerce Department said orders for durable goods, items made to last at least several years, increased 1.3 percent to $228 billion in December. Economists expected an increase of 1 percent. The results were led by the biggest increase in business equipment demand since August.

`Legs'

``The number was good, it's showing there's legs on the industrial side of the economy,'' said Kurt Brunner, who helps manage $1.9 billion for Swarthmore Group in West Chester, Pennsylvania.

AT&T, in its first results since the company was created by the combination of SBC Communications Inc. and AT&T Corp., said revenue expanded 25 percent to $21.6 billion, including its wireless unit. Net income more than doubled. Verizon's revenue rose 5.8 percent to $19.3 billion.

AT&T added 30 cents to $25.51, and Verizon climbed 30 cents to $31.68.

Microsoft, the world's biggest software maker, said after the close that revenue this quarter will be $10.9 billion to $11.2 billion and per-share earnings will be 32 cents to 33 cents. Goldman, Sachs & Co. analyst Rick Sherlund had expected revenue of $11 billion and profit of 31 cents a share. Shares of Microsoft, which said fiscal second-quarter profit rose 5.5 percent, added 40 cents to $26.90 in extended trading.

Tellabs Surge

Shares of Tellabs Inc. jumped $2.06, or 20 percent, to $12.57 for their biggest gain since they were first sold to the public in 1983. The U.S. maker of telephone-network equipment said fourth-quarter profit, excluding some items, was 22 cents a share on higher sales. UBS AG analyst Nikos Theodosopoulos, rated among the top networking-equipment analysts by Institutional Investor last year, expected 17 cents.

Sales this quarter will be $495 million, Chief Executive Michael Birck said in a conference call, higher than the $470.2 million average analyst estimate, according to Thomson.

Chipotle surged to $44 from its offering price of $22. Chipotle and McDonald's together sold 7.88 million shares. Chipotle first estimated last month that shares would begin trading at $15.50. The company, trading under the symbol CMG, has 489 stores that sell burritos, tacos and salads and was acquired by McDonald's in 1998.

`Unbelievable'

``That stock is unbelievable,'' said Michael O'Hare, head of listed trading at Lehman Brothers Inc. in New York. ``It's a hot deal.''

Novellus Systems Inc. rallied $1.96 to $29.88, pushing an index of semiconductor companies to the highest gain among 24 groups in the S&P 500. The maker of equipment to process silicon wafers said fourth-quarter profit, excluding some items, was 20 cents a share, more than the mean estimate of 16 cents in a Thomson survey. Novellus raised its first-quarter profit forecast and Chief Executive Officer Richard Hill said the chip industry is ``fundamentally strong.''

GM Drag

GM, the world's biggest automaker, fell 80 cents, or 3.4 percent, to $23.05 for the worst performance in the Dow average. The company had a fourth-quarter loss of $4.78 billion and was unprofitable on an annual basis for the first time in 13 years amid rising health-care costs and the lowest U.S. market share since 1925.

Juniper, the world's second-largest maker of equipment that directs Internet traffic, lost $4.46 to $17.06. The company said yesterday that fourth-quarter sales were $575.5 million, less than the average estimate of $579.2 million in a Thomson survey of 30 analysts. Analysts at Goldman Sachs Group Inc. and Bear Stearns Cos. recommended selling the shares.

Amgen Inc., the world's biggest biotechnology company, fell $3.57 to $71.90 after sales of Aranesp, used mostly to treat anemia in cancer patients, failed to meet some analysts' expectations.