Tuesday, December 23, 2008

Kodak - Buy @ 6.11 USD


Kodak has been taking a beating ever since they announced they were getting out of the "traditional photography" business in 2003. However, they said they would invest in developing new technologies and get more into digital photography. Well today, 5 to 6 years later, I think they are starting to get it right. Although their stock has been taking a beating for the better part of several years, I think it's finally time for Kodak to make a come back and it's mostly due to their new line of printers.

Now everyone knows that HP is *THE* established printer maker. I'll talk more about HP in another post maybe, but I think the point I need to make here (and that Kodak makes) is that their printer ink cartridges are *exorbitantly* expensive. I think it's too late in the game for Kodak to catch up on Digital Photography and their camera's aren't particularly any better than anything else out there. However, if they can leverage their credibility towards printing and create good *inexpensive* printers that don't suck (think Lexmark and Cannon who couldn't GIVE their printers away), they may have a legitimate grounds to eat into HP's territory in that market and may even change the dynamics of the current market (the "razor blade" model described here hasn't changed much in 10 years).

Having said that, I would say that Kodak has bottomed (or is close to it) and if they stick to their guns regarding pursuing good inexpensive printer technology, they might be able to offer something new and very useful to consumers.

I'd rate Kodak a buy. I would think that at this stage... It warrants a P/E of somewhere between 8 to 10 (EK @ $7.20 to $9 USD) and it's currently trading at 6.76. However, it will probably take a few quarters of reporting positive growth and lag to get there (so think a time frame of 6 to 9 months)

The only problem is that there are a lot of other "lines of business" that dilute the overall effect of the growth I'd expect in the line of printers (the stock has a beta of 1.76) so if their other business start to falter (which I think they will), the management would be smart if they divest the non-performing businesses which will never recover.

If this works out... This maybe known as Kodak's big comeback... Stuff to write business books and management consulting cases about.

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