Penny Stocks Hitting It Big In 2020: Eastman Kodak Company
This has been the case for most of 2020: penny stocks breakout hundreds of percentage points overnight. The latest one of the stocks under $5 to turn heads is Eastman Kodak Company (KODK Stock Report). If this company sounds familiar, that’s because it is. This is the same Kodak that produces film, cameras, and many more imaging-related products.
The company’s tale is long and its past is definitely storied. Ironically, the company could have been on the verge of digital imaging. It actually is credited with inventing the digital camera back in the ’70s. But with corporate big wigs insisting that physical film would never die, the idea was effectively scrapped.
The company ended up selling its IP to companies like Google, Apple, and other tech giants decades later. Eastman Kodak has also gone through its share of troubles, declaring bankruptcy in 2012 and a once flourishing stock crumbled.
After its “rebirth,” for lack of better terms, KODK stock was mostly trading as a penny stock. There were a few breakouts here and there. But for the most part, the Rochester, New York-based company focused more on trying to build the company back up than its share price. Needless to say, Kodak’s main focus in recent years has been on things like digital print, traditional print, films, synthetic chemicals and licensed branding. It hasn’t been a major game-changer for KODK stock, however.
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I’m sure that over the years, there’ve been plenty of pundits talking about how the company “could’ve turned things around”. But the fact remains, Eastman Kodak has, for better or worse, stayed tightly connected to its roots. That is, until now.
So What Happened With Eastman Kodak Company Stock?
Normally, KODK stock trades between $2 and $3 a share on average. It saw a high of $4.78 at the end of 2019 before diving to 52-week lows of $1.50 in March. Its earnings reported in May for Q1 revealed the difficulties and hurdles that the company has faced and could face in the months to come.
Kodak reported consolidated revenues of $267 million for the quarter. These revenues were down from its previous year’s period of $291 million. Furthermore, operational EBITDA for the quarter was negative $8 million. On top of that, the company reported a net loss of $111 million compared to $18 million for the same quarter in 2019.
But something was revealed in the earnings release that somewhat foreshadowed a potentially new directive for the company:
Jim Continenza, Kodak’s Executive Chairman said, “Kodak employees have risen to the challenge of the pandemic, continuing to serve our customers and redirecting resources to produce isopropyl alcohol for hand sanitizer and manufacture face masks using our ESTAR film base. Looking forward, we will continue with our plans to double down on digital print, launch exciting new products and realign our business to focus on customers.”
Was Kodak really trying to become a medical supply company? A company with over a century of experience and acclaim for film and photography couldn’t possibly pivot at this point could it?
Penny Stocks To Watch: KODK Stock Surges After Latest News
Shares of Eastman Kodak Company stock jumped over 265% overnight between July 27th and July 28th. The one-time leader in photography sales was in the running for a $765 million government loan under the Defense Production Act according to the Wall Street Journal. This is the first-of-its-kind and is designed to help expedite the domestic production of drugs that can treat a variety of medical conditions. It also loosens the U.S. reliance on foreign sources. This saw KODK stock jump from a closing price of $2.62 on July 27 to premarket highs of more than $9.60 on the 28th
Through this initiative, the company is set to produce ingredients for generic drugs. This includes hydroxychloroquine. Kodak’s Continenza said he expects the loan to create around 300 jobs in Rochester, and 30 to 50 jobs in Minnesota.
Furthermore, it appears that the White House is getting behind the initiative with a firm stance on U.S. expansion. “This is not about China or India or any one country,” said Peter Navarro, the White House trade adviser. “It’s about America losing its pharmaceutical supply chains to the sweat shops, pollution havens, and tax havens around the world that cheat America out of its pharmaceutical independence.”
According to Wall Street Journal, Continenza expects its pharmaceutical ingredients to make up 30% to 40% of its business over time. Considering that the Kodak Campus has a substantial footprint in its hometown, there’s likely plenty of square footage to benefit take advantage of.
Not A First For Penny Stocks & Government Investments
COVID-19 has made a dramatic impact on the world. Industries are experiencing things they never thought they would. Companies are finding new ways to move with the times, and evolution is happening in real-time. The markets are surely focusing on healthcare and biotechnology but the government is looking to use it to also rebuild the U.S. economic infrastructure. This move with Eastman Kodak is one of many initiatives to bring production back to the U.S. But it isn’t the first time we’ve seen a government organization spend nearly $1 billion at penny stocks.
If you remember back in early July, there was another major news story involving penny stocks. On July 1, Overland Park, Kansas-based company YRC Worldwide Inc. (YRCW Stock Report) made the announcement. The holding company announced that the U.S. Department of the Treasury “intends to provide a $700 million loan to YRCW under authorization provided by Subtitle A of Title IV of the CARES Act.”
The Treasury said the company qualified for the loan under a provision of the $2.2 trillion law Congress enacted in late March. This authorized $17 billion for companies deemed essential to national security. That event saw shares of YRCW stock skyrocket overnight as well. The penny stock closed its session at $1.72 the day before the news hit. It then proceeded to climb to highs of $3.69 during the weeks to follow. Today it trades around $2.50 but the surge of interest stemming from the government injecting millions is evident. Will that be the same for KODK stock?
What’s Next For KODK Stock?
This is exciting news for a company that has made attempts to reinvent itself over the years. But what do things look like ‘under the hood’ for a company with such bad earnings from Q1 of the year?
Based on the balance sheet as of May 12, 2020, long-term debt is at $111.00 million and current debt is at $2.00 million. That amounts to $113.00 million in total debt. It’s also one of the unique companies that carries pension and postretirement liabilities on its book. That equated to $372 million for the quarter. In total, Eastman Kodak holds more than $1 billion in liabilities with over $1.2 billion in assets. In a lower inflationary environment, this may not pose as big of a near-term issue for the company.
Needless to say, this more than 3/4 of a billion loan to Eastman Kodak could change things. Also, considering that one-third to nearly one-half of the company’s business could be dedicated to this new initiative, would that mean an end to one of the world’s first film and photography companies?
The company, founded in Rochester in 1888, at its peak employed more than 145,000 people worldwide, including more than 60,000 Rochester-based workers. But in the past 30 years, the world obviously shifted to digital imagery and abandoned film. Could this move be the turning point for what has turned into a chemical company with a photography background? Or is this just a short-term fix to a much longer-term issue? Furthermore, after the initial surge, can KODK stock continue sustaining levels above $9?Comment below and let us know your thoughts on Eastman Kodak’s apparent, latest development.