Developing Situation at Eastman Kodak

We are not sure exactly what is going on with Eastman Kodak (EK), but has seen its price steadily rise throughout the day on Wednesday and ended up more than 12%. Additionally, there is substantial trading and options volume to back up this move. The interesting thing is that we can see no news of any consequence whatsoever. As followers of Ockham know, we are always trying to understand the way the financial media affects stocks. This major move in the stock is noteworthy because it is–as far as we can tell–void of any catalyst in the news. The best guess right now is that the company announced their earnings conference call would be held on Thursday, Jan. 28th. Perhaps the fact that the company did not warn about an upcoming earnings miss is the reason that market is sending shares higher.

A mysterious move such as this could not have come from a less conspicuous stock, as Eastman Kodak has lost money for investors for years. It will come as no surprise to investors that Kodak has had a bear of a time trying to revamp their business model to the digital world. The company had made a nice business out of film, cameras, and other photography related products, but for some reason was left in the dust during the digital revolution. The fundamentals have steadily declined as sales peaked in 2005 and leaked away ever since. The multiyear reorganization has heralded few successes and can claim only one profitable quarter since the start of 2008. This has led many to disparage the company’s leadership and call for a change, and perhaps they are right.

Even though the company sells for a nominally cheap price, we have had a Fairly Valued rating on them for some time. We see few reasons for the optimism the market is displaying right now, but perhaps some traders are willing to bet that the restructuring is finally showing results. Analysts are anticipating a profit in the fiscal fourth quarter, but it will hardly make a dent in the full year’s loss. Furthermore, there are more losses expected for the year ahead. Speculators may be attracted to this iconic name despite its recent past, but we will need to see further improvement in order to distinguish if the new business model is a winner.

Developing Situation at Eastman Kodak

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Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

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