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By Ivan Castano
July 31, 2020

It was a real Kodak moment — but it didn’t last.

Investors buying into the storied yet failed photography company’s shares were whipped around this week, following Washington’s announcement that it will loan it $765 million to pivot into a producer of active ingredients to make generic drugs, including the controversial hydroxychloroquine to treat Covid-19.

The New York-based company’s stock surged 203% following the news Tuesday and shot up again Wednesday, gaining a whopping 2500% within 48 hours to hit $60. Shares began losing steam on Thursday, however, plunging to around $20 Friday afternoon.

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Unfortunately, investors enamored with the iconic company — which was founded in 1888 and pioneered color photography in the 1930s — are facing more losses.

Indeed, analysts see more pain ahead for the company until it provides more clarity about its future revenue stream and ability to pay the loan, which was provided by the Internal Development Finance Corporation.

An uncertain new strategy

George Conboy, Chairman of Brighton Securities based in Kodak’s hometown of Rochester, sees the company’s shares settling at $12 to $15 in the near term, based on potential sales of $400 million within a year. That would trim Kodak’s market cap to $500 million from nearly $1 billion currently.

“I would say $12 to $15 is the fair value, closer than $12 when it’s up and running and that could take a year,” says Conboy.

He doesn’t rule out another surprise spike if positive news drives the Robinhood crowd to pump the shares once more. In fact, many market watchers blamed the millennial-popular app for propelling Kodak’s shares to unrealistic levels, only to dump them later. The jaw-dropping, sudden gains in the stock have also fueled claims of insider trading.

Robinhood apart, “some investors could hang in disbelief for a year and may not necessarily sell,” predicts Conboy. “Some may be patient, waiting to see if they can buy at a reasonable price.”

Meanwhile, Kodak’s CFO David Bullwinkle is holding private meetings with investors and analysts to inform them about the firm’s strategy to become an American generics powerhouse under the Defense Act, fulfilling Trump’s desire to shift production of key drug components back to the U.S. from Asia.

“I am sure analysts will start covering the stock soon and I wouldn’t be surprised if they take advantage of their current market valuation to launch an equity offering to trim their high debt,” Conboy says. He added, however, that Kodak must move quicker to inform investors about its plans if it wants to garner more funds. “The level of discourse it has with the street is still almost nil.”

Ami Fadia, an analyst with SVB Leerink, agrees greater disclosure is pivotal.

“So far, the information they have provided is very incomplete,” she says. “$750 million is a big investment for them to make a big plant but how expansive will it be, how much will it produce? We are also unsure about what kind of ingredients they will make, if starting materials [the chemicals to make active ingredients] or if they will just make the active ingredients themselves.”

Generics are a low-margin business so Kodak will need a strong customer base to consume them. Analysts say those customers will probably be vaccine makers or other companies that have received public funds such as Moderna, Novavax or Phlow, which just raised $812 million from the government to make Covid-19 medicines and therapies.

Fadia expressed surprised the administration awarded such a key contract to a struggling company with little expertise in the drug-making field. “Why not pick the large companies such as Amneal or Teva, which have the ability and experience to make active ingredients at much shorter notice?” she asks.

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