Up until about two days ago, Eastman Kodak (NYSE: KODK) looked like one of the biggest dogs the stock market had ever known. It was trading in a woefully steady pattern, and not doing much of anything. What a difference a $765 million loan from the federal government makes, though, as the company's stock more than tripled to hit a new 30-month high on the strength of that sudden influx of capital.
Literally, What a Difference a Day Makes
For the last year, the company has been trading in a tight range between $2 a share and $4 a share, and not even the massive sell-off action from the coronavirus pandemic was enough to bump this company in any real direction as it only dipped down to $1.59 a share on March 20.
Then, seemingly out of nowhere, the company announced it was getting a loan from the federal government to do something that many likely didn't even think Eastman Kodak actually did: produce ingredients for generic drugs.
The addition of the $765 million was enough to more than triple the company's market capitalization, bringing it to what was described as a “30-month high” of nearly $350 million. The gains didn't end there, either; reports noted the premarket trading earlier today bumped the stock up another 66%, and as of this writing, gains had not yet stopped with the company now reporting a share price of $21.31, well off yesterday's close of $7.95.
Rationalizing the Loan
The word from the Trump Administration said that the move was “one of the most important deals in the history of US pharmaceutical industries,” and was staged under the Defense Production Act. This was the 33rd such time the Act had been used, and represents a potentially huge new gain for the US.
Reports noted that this represented the first time something like this had happened, and with it, there's a whole new and wholly local supplier of active pharmaceutical ingredients for a range of medications, including some coronavirus treatments.
Kodak, for its part, noted that the components it produces are classified as “essential”, but haven't really been produced much, to the point where there are actually “chronic national shortages” on these, as the Food and Drug Administration (FDA) considers the term. Kodak is planning to use the new loan to expand operations in Rochester and St. Paul, launching the new Kodak Pharmaceuticals line to act as a kind of umbrella for the whole operation. Reports even noted that, eventually, this line of business could account for more than a third of Kodak's overall business.
Is It Worth Getting In?
The immediate question that likely follows a development like this is, is it time to get in? Given that the stock has already gone up around 10-fold already, it would be easy to think that maybe the “explosive growth” stage has passed. That would probably be accurate; another 10-fold growth period for Eastman Kodak is probably out of line. With the company expected to offer up earnings data sometime around August 13, there likely won't be much to report aside from this by then.
The company has a real potential to be a generic drug workhorse, which isn't a particularly flashy business but could be a cash cow going forward. Being a leading producer of ingredients considered to be in “chronic national shortage”, especially amid an increasing chorus of “buy American” coming into play, could be fairly lucrative if unremarkable business.
The chances of further big gains seem comparatively limited. The chances of some profit-taking coming up in the next couple of weeks seem fairly likely, especially as it will likely be clear by earnings reports that the company doesn't have much of a followup since getting this massive loan.
However, Eastman Kodak may be positioning itself to be a major new supplier of drug components that were formerly difficult to get in the US, and that could be just the fuel this company needs to make regular, steady profits of the kind that fuel retirement savings going forward. This should be one to watch over the next few weeks for a better entry point.
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