Eastman Kodak Company (KODK) in Rochester, N.Y. provides hardware, software, consumables, and services to customers in the commercial print, packaging, publishing, manufacturing, entertainment and commercial films, and consumer products markets worldwide. KODK shares have slumped 52.5% in price over the past year and 31.2% over the past six months. However, the stock has gained marginally year-to-date to close yesterday’s trading session at $4.72.

KODK hit its 52-week low of $3.46 on January 28.

On July 28, 2020, the company won a $765 million government loan to establish a pharmaceutical division manufacturing ingredients for generic drugs. However, the deal was put on hold after allegations of possible insider trading on both the business and government sides. The Attorney General of New York launched an investigation and had ordered Kodak’s Chief Executive Officer and general counsel to testify in mid-2021. Kodak was being investigated by several congressional committees, the U.S. Securities and Exchange Commission. Also, the Law Offices of Frank R. Cruz launched an investigation on potential claims against the board of directors of KODK concerning whether the board breached its fiduciary duties to shareholders.

Here is what could shape KODK’s performance in the near term:

Bleak Past Performance

KODK’s revenues have declined at a 3% CAGR over the past three years and 7.1% over the past five years. Its net income has decreased at a 26.7% CAGR over the past three years, while its EPS has decreased at a 39% CAGR. Also, its levered FCF declined at a 24.1% CAGR over the same period.

Financial Growth in the Last Reported Quarter

KODK’s total revenues have increased 13.9% year-over-year to $287 million for its fiscal third quarter, ended September 30. Its gross profit stood at $43 million, up 38.7% from its year-ago value. And the company’s net income came in at $8 million, indicating a substantial improvement from its negative year-ago value of $445 million. Its EPS increased 24.4% year-over-year to $80.60.

Mixed Profitability

KODK’s 15.61% gross profit margin is 68.5% lower than the 49.58% industry average. Also, its 4.39% and 3.00% respective net income and levered FCF margins are 30.9% and 72.2% lower than the industry averages.

However, KODK’s 37.07% and 9.19% respective ROE and ROTC compare with the 8.00% and 4.97% industry averages.

Lower-Than-Industry Valuation

In terms of trailing-12-month P/E, KODK is currently trading at 8.93x, which is 67.7% lower than the 27.67x industry average. Also, its 0.45 trailing-12-month EV/Sales ratio is 88.8% lower than the 3.98 industry average. And its 0.33x trailing-12-month Price/Sales is 91.2% lower than the 3.77x industry average.

POWR Ratings Reflect Uncertain Prospects

KODK has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of D for Stability, consistent with its beta of 5.

KODK has a C grade for Quality. Its mixed profitability justifies this grade.

Among  47 stocks in the Technology - Hardware industry, KODK is ranked #29.

Beyond what I have stated above, one can also view KODK grades for Value, Growth, Momentum, and Sentiment here.

View the top-rated stocks in the Technology – Hardware industry here.

Bottom Line

The company had struggled in the digital age of photography and has argued that analog photography is better than digital. Although the company is advancing its digital capabilities, it faces stiff competition from established digital imaging companies globally. KODK has lost the market dominance that it once enjoyed. The company’s revenues and EPS have been declining over the past years. Though it delivered stable growth in its most recent quarter, analysts expect its EPS to decline 12% per annum over the next five years. Thus, it could be wise to wait for its prospects to improve before investing in the stock.

How Does Eastman Kodak Company (KODK) Stack Up Against its Peers?

While KODK has an overall POWR Rating of C, one might want to consider taking a look at its industry peers, AstroNova, Inc. (ALOT) Canon Inc. (CAJ), which have an A (Strong Buy) rating.

KODK shares were unchanged in premarket trading Friday. Year-to-date, KODK has gained 0.85%, versus a -7.98% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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