Eastman Kodak as a COVID-19 Play

Eastman Kodak (KODK) is suddenly a COVID-19 play.

On July 28, 2020, the company announced it secured a Letter of Interest (LOI) from the U.S. International Development Finance Corporation (DFC) to establish Kodak Pharmaceuticals with a $765M loan. Kodak Pharmaceuticals will “produce up to 25 percent of active pharmaceutical ingredients used in non-biologic, non-antibacterial, generic pharmaceuticals…” The DFC describes itself as “America’s development bank.” As such, the DFC invests in private companies to support unaddressed, under-served, and emerging market needs in the U.S. In the case of Eastman Kodak, the DFC explained:

“Kodak Pharmaceuticals will produce critical pharmaceutical components that have been identified as essential but have lapsed into chronic national shortage, as defined by the Food and Drug Administration (FDA). Although Americans consume approximately 40 percent of the world’s supply of bulk components used to produce generic pharmaceutics, only 10 percent of these materials are manufactured in the United States…

DFC’s loan will accelerate Kodak’s time to market by supporting startup costs needed to repurpose and expand the company’s existing facilities…”

This initiative is the first act of a partnership between the DFC and the Department of Defense (DOD) to respond to strategic national priorities arising from the COVID-19 pandemic. A Presidential executive order (EO) on May 14, 2020, established the authority of the DFC to work with the DoD and other government agencies to respond to the pandemic with strategic investments:

“To ensure that our country has the capacity, capability, and strong and resilient domestic industrial base necessary to respond to the COVID-19 outbreak, it is the policy of the United States to further expand domestic production of strategic resources needed to respond to the COVID-19 outbreak, including strengthening relevant supply chains within the United States and its territories.”

Regarding the DFC:

“The Chief Executive Officer of the DFC may…in consultation with the Secretary of Defense, the Secretary of Health and Human Services, the Secretary of Homeland Security, and the heads of other agencies as he deems appropriate, for the domestic production of strategic resources needed to respond to the COVID-19 outbreak, or to strengthen any relevant domestic supply chains.”

And so enter Eastman Kodak, a company desperate seeking a growth business.

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Support for A Soaring Stock Price

Analysts did not even bother asking questions at the last earnings conference call of Eastman Kodak; perhaps analysts did not even bother attending. On that day, May 12th, KODK closed at $2.68, barely above an all-time low set two months prior. In the middle of the pandemic, investors seemed to be treating Eastman Kodak like the company was doomed (again).

The news of the DFC loan sent KODK shares soaring. The stock closed with a 203% gain and a 2.5-year high. The stock traded as high as $11.80 which produced a 350% gain and a price level last seen when Eastman Kodak made a splash launching a blockchain and cryptocurrency business.

Eastman Kodak followed up a 25% gain with a 203% surge even after a sharp fade from intraday highs. Source: TradingView.com

At first glance, the price surge looks like the latest in an expanding line of extreme and manic price runs fueled by the Federal Reserve liquidity during the pandemic. Yet, the size of the DFC loan suggests that KODK’s stock price should remain elevated for some time to come. Before the news, KODK sported a mere $92M market capitalization, while the company earned $1.1B in revenue in its 2019 fiscal year. GAAP net earnings were $116M and operational EBITDA was $12M for 2019. In other words, the loan is equivalent to the scale of the company. If the pharmaceutical venture achieves success, Eastman Kodak should enjoy a substantial boost in revenue and earnings.

Ever since I covered Eastman Kodak’s cryptocurrency and blockchain business, I traded in and out of the stock; I waited for a sustained rise of a Phoenix. I included a return to KODK shares as I bought into the depths of oversold trading conditions from the pandemic. From that point, I waited and waited.

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When KODK surged 25% a day before the DFC news, I mistakenly assumed traders were dusting off KODK as a cryptocurrency play. I associated KODK’s surge with the convincing breakout of bitcoin above $10K. So when KODK gapped up on the DFC news, I reflexively took profits. Now, upon further consideration, I want to buy the dips in KODK. I may never get that chance as the stock surged back to $11.55 or so in after-hours trading.


The commentary from Eastman Kodak management during the Q1 2020 earnings conference call indicated that the company was pursuing government funding for its business. However, the conference call occurred two days before the executive order authorizing the DFC partnerships. Here are highlights from the Seeking Alpha transcript that I found of greatest relevance:

  • “We are leveraging our advanced materials and chemicals, manufacturing expertise to assist in the pandemic, not just make the Kodak products.” Eastman Kodak referred to hand sanitizers, face shields, and film and circuitry for ventilators.
  • “…any government advantages in this program, we will try to take advantage of. Unfortunately, and most of the relief is geared towards small business, which Kodak doesn’t apply, or most of your employees are in the U.S. which also doesn’t apply.” Eastman Kodak even lamented that “we don’t have a lot of opportunity for government funding, which means we have to do it on our own.”
  • Fortunately, Eastman Kodak’s customers were getting government assistance.
  • “…sales volumes in the second quarter of 2020 are expected to be negatively impacted, and collections of accounts receivable are expected to slow, based on the impacts we have seen to-date in collections.”
  • As the duration and scope of COVID-19 continues to evolve, Kodak will continue to monitor for any new government relief programs, for which the company may be eligible.” (emphasis mine)
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Two days later, Eastman Kodak’s prayers were answered in the form of the DFC executive order.

This latest resurgence of interest in Eastman Kodak should last much longer than past episodes of fleeting interest. Still, the stock is speculative until the company begins work on its new pharmaceutical manufacturing capabilities. I will size any future investments/trades accordingly.

Be careful out there!

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in KODK over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Via SeekingAlpha.com