Zacks_Analysts' Blog : Kodak Stays Neutral - Analyst Blog

We reiterate our Neutral recommendation on Eastman Kodak Company (EK).

The company continues to emphasize its growth through proactive investments in priority business fields and development of innovative products. Such investment tactics and business diversifications are expected to raise market share and provide momentum to the stock in the longer term.

Kodak has continuously been launching innovative products and initiating worldwide promotional programs in order to feed the rising demand both in the domestic and international markets. In this backdrop of perpetual demand growth, we believe that the new product launch programs and promotional measures will help sustain the company’s expansion, thereby promoting revenue growth.

The company, however, has been facing rising raw material prices, especially, silver, aluminum and other principal raw materials, leading to a higher cost of production, in turn affecting profitability. Besides, the company is vulnerable to product reliability as it depends highly on third party manufacturers and external suppliers. Hence, Kodak’s exposure to volatile commodity costs, third party dependence and changes in interest rates only aggravate our concern.

Mention may also be made of the exchange rate fluctuation due to the company’s international business distribution network, which has been affecting the company’s operating income negatively. Moreover, a slower-than-expected US economy as well as stagnation in Europe remain  incessant threats to the company’s international revenue generation.

At the same time, it is heartening to find that despite all odds, Kodak has remained focused on successfully monetizing its Intellectual Property (IP) portfolio for seven years. The company’s successful IP licensing strategy and sale of assets have continued to encourage a decent liquidity within the firm to fund operations. The company’s commitment toward transforming its business into a digital, profitable and sustainable one appears encouraging, even in a highly competitive and cyclical scenario of sinking demand.

Based in New York, Kodak provides imaging technology products and services to the photographic and graphic communications markets across the globe. The company directly competes with its peers such as Canon Inc. (CAJ), Sony Corporation (SNE) and FUJIFILM Holdings Corporation.

Kodak has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).