NEW YORK (CNN/Money) -
Even if Martha Stewart takes a fall, it's unlikely that the merchandising company that bears her name will.
When a company's founder goes to jail, it's certainly bad for business. But just how bad would it be for Stewart's namesake company (MSO: Research, Estimates)?
"That's the $64,000 question," said Morningstar analyst T.K. MacKay, one of many on Wall Street who'll be watching with interest as the criminal trial of Stewart gets underway.
Jury selection started Tuesday for Stewart's upcoming trial, which will be one of the most closely watched criminal trials of a corporate executive ever. She faces up to 30 years if she's convicted on all counts.
But whether she's convicted is far from certain. And even if she is, she'll probably get less time -- three to five years, perhaps -- since full maximum sentences are rarely imposed, experts in corporate crime say.
Still, way before her trial date was even set, her unwanted notoriety put the company she founded on the hot seat. The stock sank to near $5 a share in October 2002 -- after the company warned that Stewart's legal problems were hurting results -- a far cry from when it went public at just under $40 a share in 1999.
| 
| |
|
|
|
|
|
 Jury selection begins today in New York for the upcoming criminal trial of Martha Stewart. CNNfn's Allan Chernoff reports.
|
Play video
(Real or Windows Media)
|
|
|
|
|
|
But investors and veterans on Wall Street note that the company's management has been gradually distancing itself from Stewart since she stepped down as chairman and CEO last June, making slow but subtle changes to allow it to prosper regardless of the fate of its founder.
"I think there's a lot of value there," said Jamelah Leddy, analyst with McAdams Wright Ragen, a brokerage firm in Seattle, noting the company has plenty going for it besides the Martha Stewart brand.
"Most of the damage has already been done to the stock," she said. The value of the list of the company's magazine subscribers alone supports a price of $9 to $10, she added, whether Stewart goes to prison or not. "And there's more to this company than magazine subscribers."
Leddy, who owns the stock, said the trial may deal the stock a glancing blow. But she said customers who bought nearly $200 million worth of the company's products at its peak are buying their own lifestyle, not Stewart's. They'll continue to do so, whether or not Stewart is convicted, she said.
Missing: Martha
Meanwhile, management has been rebuilding the franchise by weaning customers off Martha.
Morningstar's MacKay -- who estimates the company is worth at least $7 a share with or without Her Highness -- noted the company has developed new products and tweaked existing ones to "distance the company" from Stewart.
"This is not a fly-by-night company," he said. "The wheels are in motion on all sorts of projects."
The company wouldn't say whether its strategy was designed to differentiate company from founder.
But it noted it has $175 million in cash and plans to continue investing in "both new products and brand label extensions."
"The attitude at MSO remains business as usual, morale is good and the mood is one of pride in our product quality, the strength of our brand labels and the continued achievements of the company under challenging times," President Sharon Patrick said in a statement.
Analysts said the launch of a new publication, Everyday Food, and the TV show "Pet Keeping" prove that management is pursuing a Martha-less, or at least a Martha Light, future. The magazine has Stewart's name on it, but only in the fine print. The pet show has no Martha branding.
For a closer look at Martha's empire, click here
Current management, led by president Sharon Patrick, wins high marks for guiding the company through the twin crises of Stewart's indictment and the recession.
Even bearish analyst Alissa Goldwasser of William Blair & Co. gives the company a fighting chance if Stewart gets hard time. She rates the stock "underperform," citing the trial.
But "the outcome of the trial will not necessarily determine how viable MSLO's publishing division will be in the future," she wrote in a recent report.
"A negative outcome involving incarceration would undoubtedly make a comeback for publishing more difficult. However, a successful rebranding initiative could breathe new life into the flagship magazine and lure back reluctant readers and skittish advertisers."
Still, problems remain.
Management said in November it cut circulation estimates for its flagship publication to 1.8 million from 2.3 million, a 21 percent drop. The news came as the company was reporting a third-quarter loss of 8 cents a share, handing investors their third red-soaked quarter in the last four.
And management's bearish guidance for upcoming quarters suggests the worst isn't over yet.
The rebranding of a company so closely associated with one person will take time and finesse, those watching the company say. But until Stewart's trial is wrapped up, the jury will remain out on the verdict's impact on her media empire.
|
