Is There Value Left In Eastman Kodak? (EK)

This morning we started seeing increased trading activity in shares of the long-troubled photo giant Eastman Kodak Co. (NYSE: EK).  Then came the option alerts along with the doubling volume alert from VSInvestor.com.  Technically, this stock started to stabilize on Friday, then had a strong day yesterday, and today exploded with a 22% gain.  This move that took it to $4.00 has shares up more than 35% from the lows of last week.  We do not want to spend too much time addressing the rumor mill, but what we did want to look at was what sort of value there is here.  Or isn’t…

In its most recent earnings call, CEO Antonio Perez said he expects the company to end 2009 with a solid cash balance and very manageable debt levels.  The company even expects holders of the $575 million in convertible notes to redeem them when eligible next year in October 2010.

Just yesterday, Eastman Kodak was one of the stocks covered by Barron’s as a candidate for a reverse stock split.  Hopefully management won’t fall for that.  The trick almost never works.  If we look at a chart, the company has held very sturdy above its 50-day moving average for the last three weeks and today’s move took it above the 200-day moving average as well.  Chart by affiliate INO.com.

After taking a look at earnings and after taking a look at earnings estimates, it becomes hard to imagine just who would be a theoretical buyer of Eastman Kodak.  There was a while that the company was looking like a value stock, but then the recession knocked out any chances of a turnaround.  It is even possible to make the argument that there is a recession at Kodak regardless of what is going on in the economy.  Our take is that the company’s new printers and its move to digital cameras was just too late in a very crowded field as its old core operations in film have been under fire for a decade.

We wanted to go over its last earnings and try to look forward.  The company lost on earnings by a bit more than expected for Q2 at -$0.43 EPS vs. -$0.37 estimates.  Estimates from Thomson Reuters for the September quarter are a mere -$0.10 EPS and it is expected to show a minor profit of $0.03 EPS in Q4-2009.  The problem is that it is expected to be a net loser as those estimates are -$1.47 EPS for 2009 and still -$0.57 EPS for 2010.  Analysts expect $7.45 billion in revenues for all of 2009 and another drop to $7.01 billion in 2010.  To illustrate just how poor that reading is, the revenues in 2008 were $9.416 billion.  They were $13.27 billion in 2006.

For the second half of 2009, Kodak gave a target for digital revenue to grow by 1% to 3% and total company revenue to decline 4% to 6%, contingent upon the introduction of newer and higher margin digital cameras and devices and other issues.  We are still waiting for its formal balance sheet before breaking more down further on the value (or inverted value) of its books.

Speaking of analyst estimates, just about every single analyst is negative or cautious on this stock.  So despite the bleak opinion matrix, any good news or any bit of less bad news can cause that much more buying if you look at sentiment and also short interest.  We have the most recent short interest data from NYSE listed as right around 43 million shares.  That is roughly 10-days of volume and roughly 16% of its float.

Imagining any buyout here seems a hard case.  But the possibilities of a partnership or a stake could be more imaginable.  At this point, endorsing any moves or directions is a difficult situation.  CEO Antonio Perez has been a long-standing member of our CEOs THAT NEED TO GO list.

JON C. OGG
AUGUST 4, 2009