We came across a bullish thesis on Eastman Kodak Company (NYSE:KODK) on Substack by A Capital Research. In this article, we will summarize the bulls’ thesis on KODK. Eastman Kodak Company (NYSE:KODK)’s share was trading at $6.57 as of Dec 31st. KODK’s trailing P/E was 9.39 respectively according to Yahoo Finance.
A factory worker monitoring a conveyor belt of specialty chemicals being produced.
Eastman Kodak Company (“Kodak”) is undergoing a remarkable transformation, leveraging its overfunded pension plan as a catalyst to reshape its financial future. Known for its legacy in photography, Kodak is pivoting toward a diversified portfolio centered on advanced materials and specialty chemicals, with the surplus from its well-funded pension plan playing a pivotal role in this transition.
The Kodak Retirement Income Plan (KRIP) is a rarity in corporate America, boasting a 153% funding ratio and an estimated surplus of $885–$975 million as of 2023. Kodak is actively terminating KRIP, converting illiquid assets into cash to unlock approximately $215–$270 million after taxes and obligations. This process has already begun, highlighted by a $764.4 million sale of private equity assets. The unlocked funds will primarily be used to reduce debt, which is expected to lower annual interest expenses by $40 million, and to invest in growth initiatives across its core business segments.
Kodak’s evolution from a legacy print-focused company into a chemicals-centric enterprise signals a strategic pivot toward higher-margin opportunities. Its Advanced Materials & Chemicals segment, generating $203 million in revenue with $15 million in EBITDA through Q3 2024, is the linchpin of its growth strategy. This division is expanding into areas such as EV battery materials, diagnostic reagent manufacturing, and functional printing technologies, leveraging Kodak’s expertise in coating and chemical innovation. Additionally, the Brand Licensing segment contributes high-margin revenue, with minimal costs, showcasing the profitability of capital-light strategies. However, the Print segment, burdened by pricing pressures and high costs, remains a challenge but offers potential through new technologies like the KODAK PROSPER 7000 Turbo Press.
The potential windfall from KRIP’s surplus enhances Kodak’s valuation and strengthens its position in the specialty chemicals market. The $558 million net surplus, after accounting for taxes and replacement plan costs, provides $315 million for debt reduction and $243 million for growth investments. These financial maneuvers could catalyze a re-rating of Kodak’s stock, particularly if the chemicals division scales successfully, demonstrating structural improvements in revenue mix and margin expansion.
While risks such as regulatory hurdles, economic cyclicality, and operational execution remain, Kodak’s strategic use of its pension surplus, coupled with a focus on high-growth, high-margin segments, presents a compelling investment case.
Eastman Kodak Company (NYSE:KODK) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 14 hedge fund portfolios held KODK at the end of the third quarter which was 13 in the previous quarter. While we acknowledge the risk and potential of KODK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than KODK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.