Downgrading Payless ShoeSource to Sell

Also: analysts' opinions on Check Point Software and IBM Corp.

Payless ShoeSource (PSS ): Downgrades to 1 STAR (sell) from 3 STARS (hold)

Analyst: Maureen Carini

Payless said sales and earnings trends remained weak in June, with same-store sales running about 4%-6% below last year. As a result, the company sees significant price reductions to clear seasonal merchandise hurting Q2 margins, and now sees Q2 EPS in $1.45 to $1.50 range -- sharply below the Street's expectations of $2.44. For the year, Payless expects flat same-store sales comparisons and continued margin pressures. S&P is cutting its fiscal 2002 (Jan.) EPS estimate by $1.30 to $4.85, and believes shares will underperform until a meaningful sales rebound is seen.

Check Point Software (CHKP ): Maintains 5 STARS (buy)

Analyst: Jonathan Rudy

Check Point states revenues for Q2 will be in the range of $140-$142 million, compared with the consensus estimate of $149.5 million. However, Check Point reiterates its EPS target of $0.32 for Q2, in line with consensus. While the revenue miss is slightly disappointing, considering the challenging IT spending climate, Check Point continues to execute extremely well. At 35 times S&P's 2001 EPS estimate of $1.35, Check Point is a leader in Internet security and is attractively valued.

IBM Corp. (IBM ): Maintains 5 STARS (buy)

Analyst: Megan Graham-Hackett

Several news agencies reported Monday that IBM plans to lay off 1,000 to 1,500, or 1%, of its Global Services workforce. S&P notes IBM has regularly done this to "rebalance" its skill set within its Services ranks. S&P says in 2000, IBM did a similar rebalancing after Y2K consulting work unwound. Unlike its peers, IBM plans to have a net add in its workforce by year-end. S&P would use the potential weakness in shares in reaction to the news as a buying opportunity.

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