Can Kodak Make Things Click Again?

Eastman Kodak (NYSE: EK  ) has been reporting losses since 2007 and is scrambling to return to profitability. Drawing down $160 million from its $400 million revolving-credit line recently stoked concerns and dampened investor confidence, causing the stock to plunge by 26.9% on reports of the withdrawal. Shares are down 70% year to date.

Still, the company expects to end the year with a cash balance of $1.6 billion to $1.7 billion. Is there an opportunity here for investors?

Let's develop this picture
To stage a much-needed turnaround, Kodak is investing heavily in the commercial and consumer printing segment, which turned in 48% growth for the second quarter of 2011. A shift in focus to consumer printing holds the potential for good results and more cash generation.

Kodak may have some valuable digital imaging patents under its belt, too. The value of its patent trove is estimated to be somewhere around $3 billion, almost six times its paltry $468 million market capitalization. After draining a lot of its cash in patent fights with Apple (Nasdaq: AAPL  ) and Research In Motion (Nasdaq: RIMM  ) , the company expects to generate significant cash from selling some of those patents as well. It hired Lazard in July to market 10% of its U.S. patent portfolio, with reports suggesting that big players such as Microsoft (Nasdaq: MSFT  ) and Samsung may be interested.

As for tapping the credit line, Kodak thought it was a more prudent option than redirecting money from international operations. The company generates more revenue overseas than at home, so there's a time lag between cash inflows and outflows, and redirecting its money could have cost as much as 30% more because of the tax differential.

Foolish takeaway
Kodak expects to be profitable again by 2012. As I see it, the withdrawal of cash from its credit line has opened up a good opportunity for investors and could be an attempt to return to profitability. Given that the company is willing to sell its patents and appears able to secure customers for them, it's possible we could see Kodak really unlock some value.

Fool contributor Abantika Chatterjee owns no shares of any of the companies mentioned in this article. The Motley Fool owns shares of Microsoft and Apple. Motley Fool newsletter services have recommended buying shares of and creating bull call spread positions in Microsoft and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (5)

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  • Report this Comment On October 22, 2011, at 3:30 PM, mychookie wrote:

    Ha ha ha

    One of these days, one of you pundits will be right .......for a short time. However, since 2003, I have heard this play for Kodak's upside over and over.

    The bottom line is that crappy managment never delivers long-term value. Kodak has terrible management who from day one have been more interested in showing HWP they made a mistake passing them over than actually finding Kodak's core competencies and building a sustainable business.

    Just look at FujiFilm. Ten years ago, these companies were in pretty much the same place technologically. One of them made good decisions. One didn't.

    Don't expect a miracle. Invest with managers who lead.

  • Report this Comment On October 23, 2011, at 2:54 PM, jerr1 wrote:

    Techolgy rules the survival most companys . Those who invest in research an engineering attracts talent that will bring new techolgy tomorrow.Apple prime example good vision in research engineering. Kodak has good techolgy in printing which is 70 billion dallor busness . That includes from the manufactoring currency to offset printing an magzines huge market. Kodak has devoloped new techolgy will probley make its competitors products much more expensive then kodaks an has better quality then compitors .Bottom line is products made by company an kodak surly has this .

  • Report this Comment On October 24, 2011, at 11:18 AM, jimred01 wrote:

    do not be fooled by the impressive growth in the printing segment. Any company can buy market share. The key is what is the EFO from those businesses with impressive growth. And check the trend line of the EFO of those businesses. I believe you will find substance to the accusations of poor management decisions, where good investor money is thrown after previous bad investments. Check the 'brain drain' from EK's growth businesses. You will be interested to see the talent has left the buildings. Why?

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