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Technology Stocks : Eastman Kodak: Exchange your pictures via computer
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To: Andrew who wrote (61)8/12/1997 3:23:00 AM
From: Nero   of 87
 
Andrew,

Thanks for your interest in Kodak. You're making me work to support my views. This can only be a good thing. I was surprised to see the strength of Philippa's numbers -- particularly the decline in debt.

Here are some numbers from SI (Jeez, I hate pouring tables into these threads):

Quarter ending````12/31/95```03/31/96```06/30/96```09/30/96```03/31/97
Revenue (millions)```4191.0`````3446.0````4117.0`````4179.0`````3202.0
Net income (millions)`275.0`````274.0`````440.0``````410.0``````149.0
Net profit margin``````6.6%``````8.0%`````10.7%``````9.8%````````4.7%

That is without the latest dismal quarter and two more poorly performing quarters to come.

Don't misunderstand me, Kodak is a viable money-making business. Some of their enterprise is manufacturing buggy whips, but people are still buying. My point is that Eastman Kodak is simply overvalued. You're making excuses for a company that was carrying a huge PE and is still overpriced. How do we value our investments?

Maybe I'm old fashioned, but I expect I company carrying a PE over 20 to be a fantastically growing company with current profits that are exceptional and future prospects that are golden. I think EK is valued on past glory and membership in the Dow 30 country club.

Digital photography is a difficult sector. Kodak's performance here has been woeful. Bob Unterberger's firing is testimony to EK's inability to make a buck in a business crucial to its future. Sure it's hard, but if they can't figure it out, the stock doesn't deserve to be trading so damned high. I think you raised many good questions about digital photography and Kodak's role. Many of the niches you mentioned are being filled quickly by other firms. Until most of the answers turn positive for Kodak, I'll keep this company downgraded. Why put your money into such a speculative enterprise?

As for Fisher's performance:
1) Now basically debt-free
2) Earnings floundering
3) Mediocre return on equity
4) Gross margins static
5) Company buying back (expensive IMHO) stock

You compare EK to IBM. IBM carries a PE of 17.93 (trailing 12 mos.) Kodak's PE is 27.75 (ttm). IBM's return on equity is 28.44% compared to Kodak's 17.35%. IBM return on assets 7.60%; Kodak's 5.79%. If Kodak hasn't come as far as IBM in its turnaround, why is it a more expensive stock? It shouldn't be.

In summary, I'm underwhelmed by Kodak's developments, disturbed by short term challenges and share your cautious optimism about the future.

So what's the fair market price for EK? I think a PE of 17 would be generous -- taking into account a promising future for Kodak in the digital and analog worlds. The Street has knocked down the price from 94 to 65. I think there is still a ways to go -- low 50s or high 40s if we get a serious market correction here. The bottom is 60 if the market sails clear. I'm selling short at these prices for sure.

nero
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