Morgan Joseph Upgrades Martha Stewart (MSO) to Buy; Positive Q4 Guidance and Expect 2010 Growth

November 5, 2009 9:21 AM EST

Morgan Joseph upgrades Martha Stewart Living Omnimedia (NYSE: MSO) to Buy. Price target $6.25.

Morgan analyst says, "As expected, Martha Stewart announced another difficult quarter, but it also provided positive 4Q09 guidance and discussed new initiatives on its quarterly conference call. Revenue slightly beat but EBITDA and EPS missed as the retail and advertising environment proved challenging...Broadcasting will be up significantly in Q4 due to more product placements and a payment from TurboChef. We had already modeled in the $10mm non-cash K-Mart reserve reversal in the Merchandising unit during Q4; however, the company's guidance is higher than our previous estimate...As a result, our 4Q09 revenue and EBITDA estimates move to $84.8mm and $20.4mm, (from $76.1mm and $15.8mm), while 2009E revenue and EBITDA move to $242.0mm and $12.6mm (from $233.0mm and $15.5mm)...No guidance for 2010 provided but we believe the company's swings for the fences will land some home runs. We believe the announced deal with Home Depot is a fine replacement for the K-Mart agreement, which ends next February. The scheduled launch is for January and February next year in the US and Canada. Home Depot is likely to receive the Martha Stewart paint business later on. Additionally, new partnerships with Sandals, Age Group, which plans to develop pet accessories at PetSmart stores, and the expanded relationship with the Hain Celestial Group, should further diversify the company's revenue sources and drive growth in 2010."

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