Martha Stewart Shares Rise After Founder's Indictment

Shares of Martha Stewart Living Omnimedia Inc. (MSO) rallied Wednesday after a grand jury indicted the company's founder, Martha Stewart (search), on criminal charges of securities fraud and obstruction of justice.

"It seems that some people think Martha Stewart shares are undervalued and that's the reason they are being bought up now," said Charles Berents, chief investment officer at Boston's North American Management Corp., which owns 20,000 shares in the company.

The shares rose more than 6 percent, climbing 61 cents to $10.13 on the New York Stock Exchange (search) in late afternoon trading.

The stock's rise marks a dramatic turnaround from Tuesday when news of Stewart's pending indictment sent it plunging 15 percent to $9.52. The company, which went public in October 1999 with shares trading at $18, saw its stock hit an all-time low of $5.26 last year.

In addition to facing criminal charges, Stewart has also been charged with civil securities fraud by the U.S. Securities and Exchange Commission.

However, Wall Street is not convinced the stock will sail higher in coming weeks. Analysts at Lazard Freres on Wednesday downgraded the stock to "sell" from "hold."

"Criminal charges carry greater potential risk for the brand than civil charges; we expect that advertisers and potential retail partners will stay on the sidelines until there is a final resolution," analysts Mandana Hormozi and Kathryn Mak wrote in a research note.

Stewart, a former stockbroker who founded her company in 1997, said through her attorneys Robert Morvillo and John Tigue that she is innocent of any wrongdoing.