In late June I wrote that Eastman Kodak (EK) “may be one of the top contrarian value plays of the year.” The company that once dominated film and related businesses, and spent 74 years in the Dow Jones industrial average (top-tier companies only), may never return to profitability or stage a big enough comeback to compete with the much bigger Canon (CAJ), Sony (SNE), Xerox (XRX) and others. However, with the company now valued at only $200 million, Kodak’s increasing appeal as a takeover target makes it a very interesting speculative bet.
Kodak may have a very small chance of ever returning to profitability. But as I mentioned in June, there are plenty of reasons why Kodak could be a rewarding buy:
1) Extremely Low Expectations. “The stock price has dropped so much that expectations of failure may be already priced in…any good news for the company or improved financials could send the stock soaring as investors start paying attention to the company again.”
2) Company Components Worth More Than The Stock. Perhaps Kodak’s biggest catalyst, the patent portfolio the company owns could be worth one or two billion dollars! The company stock may be trading for only $200 million, but if Kodak has billions of dollars worth of very important patents (rights to 11,000 of them), it may well be worth much more than the sum of its parts. And with very large recent interest over patent disputes and patent sales for companies like Google (GOOG), Samsung (OTCPK:SSNLF), and Apple (AAPL), Kodak could be a huge beneficiary of demand for its vital patents.
3) Lots of Cash. The company may have large debt as well, but its cash of nearly $1 billion adds value per share.
4) Brand Name Recognition. “Kodak has been a household name for over 100
