Collective Brands (NYSE: PSS), operator of Payless ShoeSource and owner of the Stride Rite brand, reported Q1 earnings on Wednesday. Revenues increased 28% to $932 million. Pretty cool increase. Adjusting earnings per share for a litigation charge and an inventory issue, net income came in at $0.71 per share versus the $0.59 per share booked a year ago.

That's decent growth, but there are a couple things to consider here. First, the top line wasn't fully organic, as it includes the Stride Rite acquisition (remember that Payless ShoeSource bought out Stride Rite and became Collective Brands). Second, same-store sales did not confirm any sort of underlying healthy trend. Comps declined a nasty 6.5%. So, even though earnings expectations were beat by a wide margin according to MarketWatch (analysts seemed to think the shoe concern would do about $0.56 per share), I'm not fully impressed.

And let's go back to that litigation thing. The earnings release discusses the risk involved with an unfavorable ruling vis-a-vis the retailer's battle with Adidas. That's another strike against the company for me. From a price-action perspective, Collective Brands' stock has been rather weak as of late, and it currently sits much closer to the 52-week low than it does to the 52-week high.

Collective Brands (NYSE: PSS) is a global footwear and lifestyle brand holding company, formed by the August merger of Payless ShoeSource and Stride Rite. Its Payless ShoeSource division is the largest specialty family footwear retailer in the Western Hemisphere. Its Stride Rite division sells athletic branded footwear and high-quality children's shoes, primarily through wholesaling arrangements. Its Collective Licensing International unit specializes in brand management and global licensing of an expanding portfolio of youth, lifestyle and fashion athletic brands. Foot Locker (NYSE: FL) and Wal-Mart (NYSE: WMT) are major competitors.

The company pleased investors earlier in the month, when it reported Q3 EPS of 39 cents. That was seven cents better than the average analyst estimate. Q3 revenues rose 18% (y/y) to $830.7 million. The CEO attributed strength to diversification and the new hybrid business model. Caris & Company subsequently upgraded the stock to "above average" and boosted its price target to $22.

MOST NOTEWORTHY: FreeSeas, Nektar, Altus Pharmaceuticals and AbitibiBowater were today's noteworthy initiations:

• Cantor initiated shares of FreeSeas (NASDAQ: FREE) with a Buy rating and $10 target, as they expect the company to benefit from the continued strength in the dry bulk market.
  
• JP Morgan resumed coverage of Nektar (NASDAQ: NKTR) with an Overweight rating, as they view weakness from the discontinuation of Exubera as a buying opportunity given the company's base royalty business and pipeline opportunities.
  
• Altus Pharmaceuticals (NASDAQ: ALTU) was initiated with a Buy rating and $19 target at Jefferies. The firm expects news flow from the company's two lead products over the next 6-12 months that should act as catalysts.
  
• AbitibiBowater (NYSE: ABH) was initiated with a Sell rating and $18 target at Banc of America, as they are cautious on newsprint trends; the firm recommends reducing existing positions.

OTHER INITIATIONS:

• Caris initiated Collective Brands (NYSE: PSS) with an Average rating and $18 target and Under Armour (NYSE: UA) with an Above Average rating.
  
• Stifel started shares of Patriot Coal (NYSE: PCX) with a Hold rating.
  
• PetroChina (NYSE: PTR) was initiated with a Sell rating at Goldman.

MOST NOTEWORTHY: Wal-Mart (WMT), Coldwater Creek (CWTR), Select Comfort (SCSS) and Anadys Pharma (ANDS) were today's noteworthy downgrades:

• Merrill downgraded Wal-Mart (NYSE: WMT) to Sell from Neutral citing expectations of margin erosion.

• Brean Murray cut Coldwater Creek (NASDAQ: CWTR) to Hold from Buy following their disappointing Q2 report and outlook.

• Select Comfort (NASDAQ: SCSS) was cut to Strong Sell from Hold at Matrix based on weak performance and high risk characteristics.

• Anadys Pharma (NASDAQ: ANDS) was downgraded to Neutral from Outperform at Cowen, citing pipeline setbacks over the last 12 months, and lack of near-term catalysts...

OTHER DOWNGRADES:

• Collective Brands (NYSE: PSS) was cut to Hold from Aggressive Buy.

• Sigma Designs (NASDAQ: SIGM) was cut to Hold from Buy at Needham.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Collective Brands (NYSE: PSS) is the company that formed as a result of Payless Shoe Source's acquisition of Stride Rite. The boring, innocuous name aside, CEO Matt Rubel has pretty ambitious plans. According to the Associated Press, Collective aims to become a "a brand-building powerhouse, injecting a heavy dose of marketing savvy into a stubbornly fragmented and sleepy industry". More acquisitions are believed to be on the way.

Why is this interesting for investors? As I wrote in a recent piece, there are a a lot of very cheap-looking shoe stocks on the market right now. I have found several manufacturers and a few retailers trading at what appear to be very cheap valuations. Their cheapness combined with Collective's acquisitiveness could lead to more deals at nice premiums for investors.

While I'm not a fan of buying on essentially blind speculation of buyouts, these stocks look cheap on their own merits, and may well be good investments even without industry consolidation. But the rise of Collective Brands could make them more timely.