Martha Stewart Downgraded, Analyst Sees Stock Drop

NEW YORK (AP) — A J.P. Morgan analyst downgraded Martha Stewart Living Omnimedia Inc. on Wednesday, saying ad pages are still dropping and a new merchandising deal struck with Home Depot Inc. may take time to benefit the media and consumer products company.

The company's shares are also due for a drop, analyst Michael Meltz wrote in a note to investors, after gaining nearly 150 percent since late July.

Ad pages fell 17 percent in "Martha Stewart Living" magazine in October — an improvement from September and August — but Meltz said he was concerned an ad recovery will lag that of rival magazines.

He also said he had concerns about the merchandising deal announced Monday. Home Depot will start selling Martha Stewart-brand home improvement products in 2010. The deal "has great potential," Meltz said in the note, but there's no minimum income guarantee from Home Depot, versus the $14 million contract minimum inked with Kmart in 2009.

It may take a while for the new products to be widely found in Home Depot stores, he said. Home Depot said items from the "Outdoor Living" category will be in U.S. stores in January. Meltzer said a broader roll out is expected in spring.