Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Junk Pile

Can Eastman Kodak make Money?

The Eastman Kodak Company (NYSE: KODK) is the phoenix of the American stock markets. Like the mythical bird, Kodak keeps rising from the ashes each time they announce its death.

Kodak (NYSE: KODK) became famous by mass producing cameras ordinary people could use. During the 20th Century, Kodak became a household name by dominating the market for photographic film. However, digital cameras and the iPhone killed traditional photography and Kodak’s business.

In 2018, Kodak gambled on cryptocurrency and lost. Specifically, Kodak offered cryptocurrency called KODAKCoin and a cryptocurrency miner for the masses.

Can Generic Drugs Save Eastman Kodak?

Neither blockchain scheme bore fruit but Kodak survives and is trying to come back through a more mundane product: chemicals.

Specifically, Kodak will produce the basic components for generic drugs at factories in Rochester, New York, and Saint Paul, Minnesota. The Associated Press reports that Kodak has received a $765 million federal loan to finance conversion of plants to produce the chemicals.

The loan is part of a federal program designed to alleviate shortages of generic drugs in the United States.  President Donald J. Trump (R-Florida) blames the shortages on a lack of manufacturing capability.

Specifically, Kodak will produce the basic components for generic drugs at factories in Rochester, New York, and Saint Paul, Minnesota. The Associated Press reports that Kodak has received a $765 million federal loan to finance conversion of plants to produce the chemicals.

Entering Pharmaceuticals is a Smart Move for Eastman Kodak

The US International Development Finance Corporation will make the loan to Kodak. Yahoo! Finance estimates that 1%-3% of Kodak’s revenues come from manufacturing drug components.

I think entering pharmaceuticals is a smart move for Eastman Kodak. The global pharmaceutical market is growing at a rate of 5.8% a year, Market Research estimates. Moreover, Market Research projects the global pharmaceutical market will grow to $1.117 trillion in 2021.

Furthermore, Americans will spend over $600 billion on prescription drugs in 2023, STAT estimates. That spending will grow from $500 billion in 2019. Additionally, STAT estimates US prescription sales are growing at a rate of 3% to 6% a year.

Pharmaceuticals are a Growing Market

Spending on prescription drugs is growing because governments spend tax money to buy them for customers. For example, Medicare pays for prescription drugs for 60 million Americans, The Kaiser Family Foundation estimates. In total, Medicare spent $129 billion to buy prescription drugs for Americans under Medicare Part D.

Additionally, another 75 million Americans participate in Medicaid, America’s single payer health insurance program for the poor, Statista estimates. Hence, government insurance pays for drugs for around 135 million Americans.

The potential market for prescription drugs in America is huge. All Americans over age 65 can qualify for Medicare Part D. In addition, Democratic Presidential candidate Joseph R. Biden Jr. (D-Delaware) wants to lower Medicare eligibility to age 60 National Public Radio reports.

Moreover, many Democrats think Biden’s proposal does not go far enough. Leftists such as US Senator Bernie Sanders (I-Vermont) want to extend Medicare to all Americans.

Thus pharmaceuticals are a growing market that could grow at a dramatic rate. Importantly, government will cover the cost of most pharmaceuticals for most citizens and loan Eastman Kodak money to manufacture them.

Is Eastman Kodak Making Money?

Eastman Kodak (NYSE: KODK) needs sources of revenue. Notably, Eastman Kodak’s revenue growth shrank by 8.25% in the quarter ending on 31 March 2020.

Moreover, Eastman Kodak reported a quarterly operating loss of -$21 million on 31 March 2020. In addition, Eastman Kodak’s quarterly revenues shrank from $329 million on 31 December 2019 to $267 million on 31 March 2020.

Dramatically, Eastman Kodak reported a -$116 million quarterly common net loss on 31 March 2020. That common net loss grew from $67 million on 31 December 2019.

Kodak did report a $36 million quarterly gross profit on 31 March 2020. That  quarterly gross profit fell from $47 million on New Year’s Eve 2019.

Eastman Kodak is Burning Cash

The Eastman Kodak Company (NYSE: KODK) is burning cash. For instance, Kodak reported a -$41 million negative quarterly cash flow on 31 March 2020.

However, Eastman Kodak reported an ending cash flow of $241 million on 31 March 2020. In addition, Eastman Kodak had -$217 million in cash and short-term investments on 31 March 2020.

Thus, Eastman Kodak has a little cash and $765 million in federal loan money to play with. Thus, Eastman Kodak will be a cash rich company for at least a year.

I think Eastman Kodak could make money with that cash, but it will take several years to generate cash. To explain, I think will take over a year to convert the plants to convert the pharmaceutical components and longer to find a market for them.

What Value Does Eastman Kodak have?

Mr. Market thinks Eastman Kodak has some value. He gave Kodak a $21.63 share price on 31 July 2020, and $14.94 a share on 3 August 2020.  

However, that share price grew from $4.03 on 2 January 2020. Dramatically, Eastman Kodak’s share value shot up to $33.20 on 29 July 2020 when Trump announced the loan.

Conversely, Eastman Kodak reported total assets of $1.22 billion on 31 March 2020. In contrast, Eastman Kodak had a $1.45 billion market capitalization on 30 July 2020. However, that market cap fell to $653.38 million on 3 August 2020.

Consequently, the only potential value Eastman Kodak has is growth. Unfortunately, the growth potential is theoretical.

I advise investors to avoid Eastman Kodak (NYSE: KODK) because it is a zombie company. To explain, Eastman Kodak has no ability to generate cash or profits now. Instead, it is a company beginning a turnaround. Unfortunately, nobody knows if the turnaround will work.

Consequently, only people can afford to hold a stock for years and wait for it to make money need to buy KODK. I think all other investors need to avoid Kodak because it has no money making potential.