We upgrade our recommendation on Eastman Kodak Company (EK) from Underperform to Neutral based on our optimism on the company’s numerous expansion programs as well as its continuous product launches at competitive prices. Recently, Kodak launched three new consumer products.
Besides, Kodak’s strategy to maintain a decent liquidity position with the prospect of $1.8 – $2.0 billion of cash and cash equivalents in fiscal 2010 boosts our expectations. Kodak ended the second quarter of fiscal 2010 with $1.3 billion of cash and cash equivalents versus $1.1 billion in the year-ago quarter.
However, disappointing results during the second quarter of 2010 based on a slower market recovery was discouraging andwe expect the weakness in economic condition to continue in the short term.
Moreover, a highly competitive market and Kodak’shuge exposure to volatile products pose immense risks. Kodak operates in a highly competitive market and encounters aggressive price competition for all of its products and services from numerous companies globally.
Based on its international distribution, Kodak is subject to foreign currency risks, changes in interest rates and commodities costs, which are volatile in nature. In addition, Kodak’s products contain silver, aluminum, petroleum-based or other commodity-based raw materials, the costs of which tend to fluctuate. Thus, the company encounters immense risks due to its huge exposure to these raw materials.
On the other hand, Kodak’s strict cost control initiatives will help it grow in the present sluggish economic environment. Thus, the stock currently retains its Zacks #3 Rank (short term Hold rating).
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