Martha Stewart Living: Looking to Make a Comeback

Martha Stewart Living Omnimedia (MSO), and its co-founder are still pretty synonymous with insider trading, but the perception is slowly changing as the brand makes a comeback. A late summer Bear Stearns (BSC) upgrade by analyst Michael Meltz helped put a floor on the stock, but no rally has been able to gain any traction. In a note to clients, the analyst emphasized how the company stood to benefit from the launch of Martha Stewart branded products at Macy's (M), the debut of food products at Costco Wholesale (COST), the upcoming third season of The Martha Stewart show, and upgrades to the company's web site. The laundry list of new initiatives, coupled with the stock's drop since late June has made the shares very attractive.

His defense of the stock came at a low point for the company. In August, Martha Stewart Living shares hit a new 52-week low after reporting a loss of $6.74 million, or $0.13 per share, compared with $1.17 million, or $0.02 per share, in the period a year ago. But it wasn't as bad as it sounded. The second quarter loss was mostly due to one-time special charges, and to the surprise of the investing community, the company actually maintained its full year revenue guidance in the range of $330 million to $340 million and operating income guidance in the range of $9.5 million to $12.5 million.

As a result, Meltz has not gone quietly, and has continued to be vocal about his optimism for Martha Stewart shares. In October, he told DowJones Newswires that he was feeling pretty bullish about Martha Stewart Living, thanks to strengthening ad sales, a resurgence of product sales at Kmart (due to a re-launched product line), and early signs that Macy's shoppers are snapping up new Martha Stewart brands. Though Meltz admits that the "current market environment is not all that welcoming to small cap 'growth' stories," Friday's earnings announcement could change all that.