Kodak Stock: Buy Or Pass?

Should you invest in Kodak right now? Well, that's a tricky question. On the one hand, the company's stock has seen a recent surge, jumping nearly 300% in a single day after it was announced that they had received a \$765 million loan from the US government to manufacture pharmaceutical ingredients. This news sparked a buying frenzy among investors, with Kodak's shares becoming one of the best-performing in any stock sector. On the other hand, there are concerns about Kodak's financial performance and prospects, with a history of poor management decisions and questions surrounding the Trump administration's decision to award the loan to a technology company rather than a pharmaceutical company. Kodak's core business model has also become largely redundant due to the widespread adoption of digital smartphone cameras. So, should you invest in Kodak right now? The verdict is mixed. While some see the recent government loan as a positive sign and an opportunity for growth, others are skeptical about the company's ability to succeed in a new venture and compete with established generic drug manufacturers.

Kodak's share price has been volatile, rising 28 times in value in a week and then plummeting 27% on a Friday

Kodak's share price skyrocketed after it was announced that the company would receive a $765 million loan from the US government to produce pharmaceutical ingredients for generic drugs to fight Covid-19. This included the controversial hydroxychloroquine, touted by President Trump at the time. The news sparked a buying frenzy, with the share price rising nearly 300% in a single day.

However, this surge was short-lived, and Kodak's stock soon plummeted 27% on Friday as traders took profits. This volatility is not uncommon for Kodak, a company with a long history of poor management decisions and an inability to adapt to technological change.

Kodak's core business model of photo and film processing has become largely redundant due to the widespread adoption of digital smartphone cameras. This has resulted in a significant decline in revenue over the years. Additionally, the company has struggled to turn a profit, with a pre-tax loss of $53 million in the first quarter of 2020.

Kodak's venture into the pharmaceutical sector is not its first. In the 1990s, the company manufactured nonprescription medicine and even owned a pharmaceutical subsidiary, Sterling Winthrop, which it later sold for several billion dollars. Despite having some experience in the industry, Kodak faces strong competition from generic drug giants and may struggle to keep its factories busy enough to pay back its debts.

While Kodak's share price has seen a recent surge, it is important to consider the company's financial health and historical performance when deciding whether to invest. With a history of poor management decisions and declining revenues, potential investors should carefully evaluate the risks before making any investment decisions.

Kodak's share price jumped nearly 300% in a single day after news of its $765 million loan from the US government

Should I invest in Kodak right now?

Kodak's History

Kodak dominated the photographic film market in its heyday, boasting a market cap of nearly $30 billion in 1997. However, the rise of digital cameras rendered many of its products obsolete, and the company eventually sold its pharmaceutical subsidiary for $4.6 billion in 1994 to focus on its core photo and film business.

Recent Developments

The $765 million loan from the US government will allow Kodak to establish a new pharmaceuticals arm, Kodak Pharmaceuticals, and expand its existing facilities in Rochester, New York, and St. Paul, Minnesota. The company aims to produce essential pharmaceutical components that are currently in chronic national shortage, as defined by the Food and Drug Administration.

Market Reaction

The news of the loan caused Kodak's shares to surge, with the stock price tripling on Tuesday and then rising as much as 570% on Wednesday. The company's market capitalization ballooned, reaching about $2.2 billion at one point. This dramatic increase in share price and market cap can be attributed to investors' positive reaction to the news of Kodak's expansion into the pharmaceutical industry.

Outlook

While some investors may be skeptical about Kodak's new venture, the company does have some experience in the pharmaceutical sector. Additionally, its chemical manufacturing expertise in films can be applied to pharmaceutical manufacturing. However, it is unclear how much it will cost to convert or open new facilities for this new venture.

In conclusion, the news of Kodak's $765 million loan from the US government to produce pharmaceutical ingredients resulted in a significant increase in the company's share price. This development offers a fighting chance for the former film giant to diversify its business and potentially recover from its previous struggles.

Kodak's revenue fell at a roughly 10% annual rate to $1.24 billion between 2017 and 2019

Kodak's revenue decline is not a new phenomenon. The company's revenues have been on a downward trajectory for decades, with its core film business eroding as digital imaging surged. This decline was punctuated by the company's bankruptcy filing in 2012, from which it emerged in 2013.

Kodak's revenue continued to fall after its bankruptcy, with the company reporting 1,640 local employees at the end of 2016, down from 2,300 employees in the Rochester area and 8,800 worldwide at the end of its bankruptcy in 2013. The company's revenue expectations for 2017 further highlighted this downward trend, with projections of $1.5 billion to $1.6 billion, down from $1.64 billion in 2016 and $6 billion in 2011.

Despite the overall decline in revenue, Kodak turned its first annual profit since emerging from bankruptcy in 2016, reporting a modest net profit of $16 million. This was attributed to productivity measures, operational reductions, and growth in its Sonora and Flexcell plate lines, among other improvements.

Kodak's free cash flow was $0 in 2019

Free cash flow is an important metric for investors as it provides a more accurate picture of a company's profitability than earnings or net income. It is calculated by subtracting capital expenditures from operating cash flow.

Kodak's free cash flow of $0 in 2019 can be attributed to the company's declining revenue and profitability. In 2019, Kodak's revenue had declined to $1.24 billion, down from $11.4 billion in 2005. The company is also facing high costs of goods sold and employee pension liabilities, which are hampering its turnaround capabilities.

In July 2020, Kodak's share price jumped nearly 300% after the company received a $765 million loan from the U.S. government to manufacture pharmaceutical ingredients. However, Kodak's stock has been volatile, and critics have questioned why the loan was awarded to a technology company rather than a pharmaceutical company.

Kodak's financial health is passable, with $263 million in debt compared to $209 million in cash as of July 2020. The company's market cap as of July 2020 was $1.45 billion, and it had a P/CF ratio under 20, which is generally considered good.

In summary, Kodak's free cash flow of $0 in 2019 reflects the company's struggle to turn a profit. While the company received a significant loan from the U.S. government in 2020, its stock has been volatile, and its ability to generate cash is uncertain. Investors should carefully consider these factors before investing in Kodak.

Kodak's stock market capitalization was about $115 million the day before its loan was announced

On 28 July 2020, Eastman Kodak's stock market capitalization was about $115 million. The next day, the company's shares surged by as much as 1,900% after it was announced that the company would receive a $765 million government loan to produce pharmaceutical ingredients in response to the coronavirus pandemic.

Kodak's stock price tripled on the day of the announcement, then rose as much as 570% the following day. The company's market capitalization ballooned more than twentyfold, to about $2.2 billion at one point.

Kodak's revenue had been in decline since its heyday in 2005, when it brought in about $11.4 billion in revenue. In 2019, Kodak's revenue was $1.24 billion. The company has also been struggling to turn a profit, recording a pre-tax loss of $53 million in the first quarter of 2020.

Kodak's foray into the pharmaceutical sector is not its first; in the 1990s, the company manufactured nonprescription medicine such as Bayer's aspirin. In 1994, however, Kodak decided to spin off its pharmaceutical subsidiary and focus on its core photo and film business.

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