Eastman Kodak Company (KODK) is a Rochester, New York-based global technology company that provides hardware, software, consumables, and services to customers in the commercial print, packaging, publishing, manufacturing, entertainment and commercial films, and consumer products markets worldwide. The company is focused primarily on print and advanced materials and chemicals and operates in six segments – Print Systems; Enterprise Inkjet Systems; Kodak Software; Brand, Film, and Imaging; Advanced Materials and 3D Printing Technology; and Eastman Business Park.

KODK has been deeply affected by the COVID-19 pandemic and has lost business and revenues consistently this year. For instance, for the third quarter ended September 30, 2020, KODK’s revenue fell $39 million sequentially to $252 million, while its net loss increased to $445 million from the quarter-ago loss of $5 million. Year-to-date, the company has burned close to $40 million in cash and ended the quarter with $193 million in cash.

Its poor financial health and the potential downside based on several factors have made our proprietary system to rate KODK as a “Sell.”

Here is how our proprietary POWR Ratings system evaluates KODK:

Trade Grade: D

KODK is currently trading higher than its 50-day and 200-day moving averages of $199.68 and $142.02, respectively, which indicates that  the stock is in an uptrend. However, the stock’s 25.4% loss over the past three weeks reflects a short-term bearishness.

In July, KODK caught the limelight as it struck a potential $765 million loan deal with the U.S. government to build a new pharmaceutical-ingredient arm and produce hydroxychloroquine, an anti-malaria drug that was then being touted as a COVID-19 cure. The potential loan drove up the stock from $2.62 on July 27 to a high of $60 on July 29^. However, it soon came to light that before the deal was made public, members of the company’s  management had awarded themselves millions of shares in stock options. This led to multiple allegations of “insider trading” and “unauthorized disclosure of material, nonpublic information.” Consequently, the deal was kept on hold by the US International Development Finance Corp (IDFC) in August, calling for an investigation.

Buy & Hold Grade: F

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers , KODK is not positioned well. The stock is currently trading 15.1% below its 52-week high of $255.66.

Looking at the past three years, the stock has grown more than 165%. However, KODK’s top-line and cash flows have declined at a CAGR of 11.9% and 34.9%, respectively, over this period.

In November, KODK admitted that an internal error had allowed former executives to make more than $5 million selling stock options they did not  own. “The lack of proper controls allowed for the “unauthorized issuance” of common stock when previously forfeited stock options were exercised.”

Regarding the loan deal, the IDFC recently concluded that there was no wrong-doing and that it had  found no evidence of conflicts of interest involving agency employees or any misconduct on the part of the agency’s officials. Nevertheless, , a  review is still underway as the SEC and members of Congress are still performing their due diligence regarding the disclosure of the deal and timing of the executive stock compensation.

The loan is still on pause. According to the company,  “As part of our long-term strategy, we will continue to move forward with expanding the existing pharmaceutical business regardless of whether we receive the potential IDFC loan.”

Peer Grade: D

KODK is currently rated #25 of 30 stocks in the Technology – Hardware group. Other popular stocks in this group are Canon, Inc. (CAJ), Logitech International (LOGI) and GoPro, Inc. (GPRO). While CAJ has lost 28% year-to-date, LOGI and GPRO have gained 106.3% and 90.3%, respectively, over this period.

Industry Rank: A

KODK is part of the StockNews.com Technology – Hardware industry, which is ranked #2 of the 123 industries. The companies in this industry manufacture PCs, cameras, streaming devices, and related accessories. The profitability of individual companies depends on technological innovation and their anticipation  of customer needs. Since the onset of the COVID-19 pandemic, the industry has witnessed an accelerated growth in demand due to the work-and-learn from home trend. Given the benefits of businesses depending more on technology, we think the industry should keep growing in 2021 as well.

Overall POWR Rating: D (Sell)

Overall, KODK is rated a “Sell” due to its poor financial performance, weak fundamentals, legal troubles, and high industry competition, as determined by the four components of our overall POWR Rating.

Bottom Line

Though KODK has come out of the bankruptcy it filed in 2012, the company is facing intense competition from other technically advanced digital camera and smartphone camera producers. KODK is clearly not the industry leader anymore. The company has been striving hard to venture into new areas and build on its strength in print and advanced materials and chemicals, including manufacturing pharmaceutical ingredients. However, it is unclear whether the government will now move forward with the loan.

In addition, KODK’s long track record of poor management is a major downside. For example, in 2018, KODK announced that it would be launching an initial coin offering (ICO), which was supposed to help photographers store their images and manage intellectual property rights. However, the project never took off, and to  date, there is no news on the progress or lack thereof of ICO.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is not good for KODK. The company’s EPS is expected to decline at a rate of 12% per annum over the next five years. Hence, in the absence of any potential developments regarding the loan deal, KODK can move in either direction and, as such, we think it wise to avoid the stock for now.

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KODK shares were trading at $8.32 per share on Thursday afternoon, down $0.30 (-3.48%). Year-to-date, KODK has gained 78.92%, versus a 17.69% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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