Buy, Sell, or Hold Eastman Kodak?

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A recent headline in The Onion read "New Apple CEO Tim Cook: 'I'm Thinking Printers.' "

The Onion's fake blurb about a new direction for Apple was ironic and hilarious, but what if it was true? Imagine a company embracing printers as the future in the digital age.

Now stop imagining. About two months later, that was the precise direction discussed by Eastman Kodak (NYSE: EK  ) . Can the digital photo pioneer evolve with printers? Let's take a look at Kodak's prospects through a buy, sell, or hold analysis for 2012.

Outside of its printer ambitions, the buy proposition for Kodak hinges on the company's treasure chest of digital-imaging patents. Although estimates vary, certain sources have discussed a price tag of almost $3 billion, significantly more than Kodak's $170 million market cap.

In the best-case scenario, Kodak pulls off a sale similar to that conducted by Nortel Networks earlier this year. Several companies, including Apple (Nasdaq: AAPL  ) , Microsoft (NYSE: MSFT  ) , and BlackBerry maker RIM (Nasdaq: RIMM  ) , snatched up Nortel's wireless and networking patents for a total of $4.5 billion in July. Unlike Nortel, however, Kodak intends to conduct a sale outside of bankruptcy court. Therein lies the challenge.

Over the past decade, new devices like Apple's iPhone and Google's (Nasdaq: GOOG  ) Android have made Kodak's cameras less relevant to our everyday lives. Ironically, your family's treasured "Kodak moments" probably won't be captured with a Kodak this holiday season. So the brand that Kodak developed over a century is fading faster than a vintage photograph.

CEO Antonio Perez believes he can rebuild the Kodak brand through printing technologies. In the third quarter, Kodak reported a printer shipment increase of 50% during 2011, but still posted a loss of $222 million from continuing operations. Printing-related products have failed to generate cash and the company is relying on external funding to stay afloat.

The likelihood of Kodak entering bankruptcy increases with every delayed asset sale or funding withdrawal. Just a few days ago, two key hedge funds backtracked on the amount they were willing to lend, further exposing (overexposing?) Kodak's cash issues.

In the eyes of many investors, Perez's push into printers might be too little, too late.

In discussing the possible Kodak scenarios with fellow Fool John Reeves, he made the point that this stock is either going to be a home run or a free-swinging strike out for investors.

If Perez can step up to the plate and execute an asset sale, Kodak's share price could recover. Unfortunately, Perez often fails to deliver in clutch situations. This year alone, Kodak's price has fallen 88%, and it's off over 97% since he assumed the CEO position in 2005. For investors curious about the future of this fallen giant, the best vantage point might be from the dugout.

The final call
I have watched CEOs execute phenomenal turnarounds in the past 15 years. Steve Jobs resurrected Apple by streamlining the company and creating quality desktops and laptops. Alan Mulally rescued Ford (NYSE: F  ) by embracing a new management style and resurrecting key brands.

However, the difference between Kodak and these companies lies in the industries they are in. Ford and Apple were knocked down, but they weren't fighting a losing battle. Cars and computers are still in high demand, but Kodak's film and even digital products are being replaced by new technology.

I'm not convinced a once-dominant photo company can regain its footing through low-margin printers. As a result, I believe investors should look to sell Eastman Kodak's stock in 2012.

For Perez and Kodak, the picture isn't pretty. For investors, this is a lesson on the fast-paced world of technology. Here at the Fool, we have research analysts focused on breakthrough companies that will benefit from devices like the iPhone and Android. We've compiled a list in a recent report, "3 Hidden Winners of the iPhone, iPad, and Android Revolution." Thousands of other investors have downloaded the report. Get a free copy for yourself by clicking here.

Fool contributor Isaac Pino does not own shares in any of the companies mentioned in this article.

The Motley Fool owns shares of Google, Ford, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of Google, Apple, Microsoft, and Ford. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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 (14) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 27, 2011, at 3:23 PM, vaderblue wrote:

    If I was CEO of Kodak< I would split the company into two divisions. One for pictures and downsize,

    second, I would sell my patents and set up a holding corp. for my picture division and create a research division for innovations, new technology

    in laser cameras. Maybe even a more expensive

    camera for military use exploring high tech lenses. I would focust on my balance sheet, debt

    and research reserves.

  • Report this Comment On December 27, 2011, at 3:33 PM, trysson wrote:

    Eastman Kodak is past the point: the point of no return. Chapter 11 is weeks away. What is the value to shareholders once the company files for protection? My good guess is $0.35 to $0.39. That is 35 cents per share, and the stock is now at 0.65, so there is a lot of downside potential. Like Eastman; A. Perez has put a shot through the heart! Why wait? Sell sell sell.

  • Report this Comment On December 27, 2011, at 3:41 PM, Mikey925 wrote:

    This is yet another shoddy article by a Fool who doesn't even know that Kodak is the leader in high speed Commercial Digital Printing. One article after another by people that are unable to do any "investigative" research, and simply regurgitate fellow "journalists" who bang on the same "drum" without any real knowledge or understanding of the metrics at Kodak, let alone product lines.

    People like Isaac Pino, the talking heads at CNBS, as well as a most ignorant female Wall Street analyst that covers Kodak think that Kodak is merely a film and camera company, blah, blah, blah.... That is the lazy man's approach to doing an article that has nothing to do with the upcoming restructuring that is due to be announced in January.

    It would be nice if someone who actually knew what they were talking about and had a comprehensive understanding of the Company and it's product lines would do an INVESTIGATIVE REPORT, instead of the typical, blah, blah, blah, heading for Bankruptcy article that makes no mention of the restructuring coming in January that was announced "internally" to Kodak employees.

    Until then, it's one Foolish article after another.

  • Report this Comment On December 27, 2011, at 3:48 PM, trysson wrote:

    Well Mikey925, if you like EK so much then buy it. If you want to buy it, why tell people about its future upward potential? Tell them to sell sell sell.

  • Report this Comment On December 27, 2011, at 4:08 PM, Jilly77 wrote:

    Even if Kodak is a big player in commercial digital Printing the best to come out of that venture will be some article about how once Kodak commercial was part of a large well known company and is now a small very profitable company. Kodak itself will be tied forever to its retail persona and that has, at least in the US become irrelevant. If every product they sell would disappear from the shelves of store tomorrow, nothing would happen other than than a few brands would pick up their paltry retail shelf space.

    CEO Antonio Perez has worse vision for Kodak than CEO Leo Apotheker did for HP. The guy at the top is everything. Patents are p--p without products that thrill and excite. If Kodak shareholders and board want this company to be around much longer they better look for a new CEO

  • Report this Comment On December 27, 2011, at 5:04 PM, Briana123 wrote:

    Lets get real Look back at the posts about ek for the last year or so. everyone knows it doesnt look good for ek. now lets look at the posts from motley fool. it doesnt matter ifthere is positive news or not but you guys turn it around. I watched the video today and didnt believe it. first of all i have underware older than the guy that was talking. second the stock price is not considering there value in assets. market cao is under 2k and they have property worth 10 or more times guys keep reporting about lack of cash and what ther patent portfolio is worth and you or i dont have a clue. You really dont have that good a tract record on predictiions .I never believed that people wered paid to bash stocks but over thye last5 year I have to wonder.When was the last time you repored any thing positive about kodak

  • Report this Comment On December 27, 2011, at 7:17 PM, flashback1 wrote:

    Can anyone out there tell me why A. Perez is even still at Kodak? He's a complete disaster, yet still being paid millions while the ship goes down. The guy should apologize to the Rochester community, shareholders everywhere, and resign. Bet you that alone would get the stock up to three bucks a share, at least.

  • Report this Comment On December 27, 2011, at 8:09 PM, robmal9120 wrote:

    Kodak was an amazing company. I had the privilege to roam around Kodak Park and could see the potential and excitement. That was in 1994, fast forward to nearly 2012 and we see a much different "picture". They would be awarded between 60&80 patents every two weeks when the patent gazette came out. They had 100's of patent attorneys on staff. What is the portfolio worth is anybody's guess? I was just a kid but remember the waste that was a big problem in my eyes. I had asked a VP of B&W film and was told that "in the big picture it's not a big deal". Well here we look at an American Giant that is going through cardiac arrest and I fear without drastic measures big yellow is a goner, as a long time supplier to them they had beaten the little guys down to where business didn't make sense so we quit working with them - what comes around, goes around but hope it's not too little, too late.

  • Report this Comment On December 27, 2011, at 9:12 PM, jerr1 wrote:

    lets say patents are sold an the patent dispute between apple an rimm has been settled . Knowing kodak will wait till earnings to make any annoucement like it did with lg an samsung. That would be logitical thing to do .

  • Report this Comment On December 27, 2011, at 10:09 PM, trysson wrote:

    Do we want to beat a dead horse, or does anyone really think that kodak is still running in the race? Why did Perez appoint a new President? Laura is in place to take the blame for sinking the company when no one will bid on the patent business. Now that she is President, she will fail and he will be sheltered by her skirts. What a cad ! ! !

  • Report this Comment On December 28, 2011, at 9:34 AM, mart0681 wrote:

    The consumer printer business was not something just decided recently. They've been for sale for a few years now, and took a few years to develop. The plan recognized losses for a few working according to plan, and nothing new here. Printers are a razor, razor blade business. Kodak needs a big enough installed base to turn to profitability...where recurring ink sales (high margin) overtake 1x printer sales (at a loss). They've said that would happen this qtr...we shall see soon enough. The commercial printing businesses (commercial inkjet, workflow software & service, packaging) are all doing double digit growth in a marketplace that's growing in single digits b/c Kodak has the exciting new products this very large industry wants. Kodak will emerge a profitable, growing (again) albeit much smaller business, that the stock price will reflect. I agree with one of the other writers...pundits are regurgitating what the other pundits observe without any digging...lazy-man journalism that ill-serves us Fools.

  • Report this Comment On December 31, 2011, at 2:32 PM, JACKAL628 wrote:

    Its always much easier to follow what everyone says when forming an opinion. If you look at the facts about eastman kodak you will see a big time comeback coming. they will sell their patents of 1100 for apx 3 bill and they will have enough money for 2 years. they have invested money in inventory and will reep the rewards of that for the 4th quarter. because of GAAP, generally accepted accounting principles, they could not recognized revenue from sales in the 3rd Q. they will be recognized in 4q. The market will run up that stock on the first good thing that happens. It will go to about $4 per share when earnings for 4th Quarter come out just like in 2009 it tripled. They are getting rid of board members they dont need, the last one that went was 63 and worked for Obama and Clinton--What could she possibly know? and businesses and patents they dont need for their future. This will be a company soon with 3bill in cash and a name like kodak so they can start to regroup. You will be calling me a genius on the 23rd of January. I have 40,000 shares will be buying 1 year calls on Monday.

  • Report this Comment On January 06, 2012, at 1:40 PM, berbno1 wrote:

    @Jack...that's what I thought at $1.50. Hope you know what you're talking about!

  • Report this Comment On January 19, 2012, at 9:38 AM, TMFBoomer wrote:
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