The proposed merger of

Kmart

(KMRT)

and

Sears, Roebuck

(S) - Get Report

boosted shares of

Martha Stewart Living

(MSO)

to a 52-week intraday high Wednesday and have contributed to a 2.8% run-up in early Thursday trading.

But some analysts are skeptical about how much the struggling media company will benefit from the deal in the longer term.

Kmart pays Martha Stewart Living a royalty for the sale of Martha Stewart-branded products in its stores. Investors, analysts and Martha Stewart Living believe that the Kmart-Sears deal could lead to broader distribution of Martha Stewart products and other benefits as well.

"They're lucky that they're in bed with the right people here, and I think they'll go along for the ride," said Scott Rothbort, president of LakeView Asset Management and a contributor to

TheStreet.com's

sister site

Street Insight

. (Rothbort has no position in Martha Stewart Living but is long shares of both Kmart and Sears.)

Not everyone's convinced, though.

Kmart's sales of Martha Stewart products are far below the level necessary to surpass the minimum royalty that the retailer is required to pay Martha Stewart Living each year, Dennis McAlpine, an analyst at McAlpine Associates, noted in a research report issued Wednesday. Even if the deal eventually juices sales, it would take a sizable increase before Martha Stewart Living sees any upside on its top or bottom lines, he said.

"Certainly, at this point, we would not assume that MSO would receive a bonanza," McAlpine said. (He doesn't have a position in Martha Stewart Living, and his firm does not do investment banking with the company.)

This isn't the first time that Martha Stewart Living's stock has soared on the hopes that a turnaround is near. Indeed, for months now, fans of the company have been looking for signs of a reversal at the company -- and bidding up the stock whenever they think they see one.

In September, the company's stock rose amid news that Martha Stewart Living had signed a deal with famed

television producer Mark Burnett and that Stewart had decided to serve out her prison sentence before an appeal could be heard on her conviction on obstruction of justice charges. Late last year and early this year, the company's stock soared as investors bet that Stewart would be acquitted of the charges against her.

But the company has had a way of disappointing investors. Instead of being acquitted, Stewart was convicted and sentenced to prison. Closer scrutiny of the Burnett deal revealed that it likely will turn out to be far more beneficial to Stewart personally than to her company.

And all hopefulness aside, the company's revenue and bottom line have continued to deteriorate, with little sign that the business has bottomed out. Subscriptions and advertising revenue at the company's flagship magazine have fallen off a cliff, for instance; and earlier this year, the company suspended production of its primary television program.

To be sure, the one consistent highlight for the company has been the performance of its merchandising unit. The company has licensed the use of Stewart's name on products ranging from paint to blankets to furniture. Despite Stewart's legal troubles, those sales have proved to be the one profitable division within the company.

Through the first three quarters of this year, for instance, the company's merchandising business has posted a $16.6 million operating profit on $29.7 million in sales. Meanwhile, the company's other divisions have racked up a $28.4 million operating loss on sales of $97.52 million.

In other words, the company would be doing a whole lot worse if not for the Stewart-branded products.

From Martha Stewart Living's agreement with Kmart alone, it expects to see at least $49 million of revenue for the year ending Jan. 31.

Analysts believe the merger between Kmart and Sears likely will allow Martha Stewart Living to place its line of products in hundreds of additional stores. That should lead to greater sales of those products -- and potentially greater royalty revenue for Martha Stewart Living.

Additionally, the deal could lead to other business opportunities for the media company, said Rothbort. For instance, one upshot of the merger could be that Sears sells its Lands' End unit, which has not lived up to expectations since it was acquired two years ago, he said. Lands' End might make a good fit for Martha Stewart Living, he said.

Martha Stewart Living "could use Lands' End to expand

its branding," Rothbort said.

But the deal also could mean little for the media company. Investor Edward Lampert, the guiding force behind the merger, has suggested that he would close additional Kmart stores after the deal has been completed. The closure of hundreds of Kmart stores in recent years has led to declining sales of the company's Everyday line of products.

Meanwhile, Sears Canada already carries the Everyday line, limiting the potential number of further additional outlets. And Sears already has a number of exclusive deals in particular merchandise categories that might prevent it from carrying certain items within the Everyday line, Morgan Stanley analyst Douglas Arthur said in a research note issued Wednesday.

"The announced combination is clearly a long-term plus for the future of MSO's merchandising segment," said Arthur. "However, we suspect that the announced deal is unlikely to spur instant royalty upside for MSO." (Morgan Stanley has banking business with the company and is acting as a financial adviser on the Kmart/Sears deal).

And just because the items might be in more stores doesn't necessarily mean sales will increase. The two companies' store bases have a significant amount of overlap, noted Stephen Monticelli, president of Mosaic Investments.

"Incremental sales at Sears might well cause cannibalization at Kmart," he said. (Monticelli has no position in Martha Stewart Living, Kmart or Sears.)

While the deal will likely be a positive for Martha Stewart Living, it doesn't justify the company's stock price, he said. "It's still way overvalued relative to its probable earnings power," Monticelli said.

Though Rothbort is more upbeat on what the Kmart-Sears deal could mean for Martha Stewart Living, he acknowledges that the deal doesn't change the company's true worth. But the company's valuation is making little difference in its stock movement these days, he said.

"Anybody who is going to be short Martha Stewart on valuation is going to get hurt," Rothbort said. "I've always played Martha Stewart not on a valuation basis,

but on the basis of some sort of event. Here's another event that you have to think about."