- Kodak’s strong earnings make it relevant again
- Traders must watch volumes in the coming days
- ESG appeal gives it another potential catalyst
Investors are showing renewed interest in Kodak Company (NYSE:KODK) stock following a strong earnings period. Let’s look at a few reasons why the company has a chance to improve in 2022.
Kodak did much better in 2021 than it did in 2020. However, there is nuance to that truth. Share prices should trend higher, but not by much.
Regardless, the firm did have a strong earnings report and that matters. On top of that, Kodak could garner attention for its environmental, social, and governance (ESG) improvements. Let’s start by digging into earnings and looking at the company’s ESG investment worthiness.
| KODK | Eastman Kodak Company | $7.01 |
Strong Earnings
Bullish investors of KODK stock got a welcome surprise on Mar. 15 when the company released fourth-quarter and full-year earnings.
The point that I want to focus on here is that Kodak’s revenues increased by a healthy amount. The company recorded $1.15 billion in revenues during 2021. That represented an 11.76% increase on a year-over-year basis.
The other important factor is that Kodak completed a full turnaround in terms of net losses between 2020 and 2021. Actually, there is nuance here. Kodak reported $24 million in net income in 2021. That was a phenomenal improvement over the $541 million net loss in 2020. But again, there is nuance to that truth, too.
As noted in the earnings report, “The prior year included a charge of $416 million to reflect the increased value of the derivative liability embedded in the convertible notes immediately prior to conversion and expense of $167 million related to the increase in deferred tax valuation allowances for locations outside the U.S.”
In effect, Kodak’s losses weren’t very different between 2020 and 2021, it is just that the company had extraordinary accounting charges in 2020.
My point here is that investors should be impressed by the revenue growth more so than the net losses turnaround. So far, that has served to raise prices in the week-and-half since earnings were released.
Watch the Trading Volume for KODK Stock
For investors truly interested in KODK stock, it makes a lot of sense to watch trading volume in the next few weeks. Investors weren’t trading Kodak at heavy volumes prior to the Mar. 15 earnings report. A heavy day was when one million shares traded hands. That popped up significantly in the days following Mar. 15, reaching 15.05 million on Mar. 18.
Since then, volume has dropped to the 3 to 6 million range on a daily basis. The simple point here is that if that volume is maintained, KODK stock stays high. If it regresses back toward that 1 million threshold, share prices will fall.
However, Kodak has another 2022 catalyst in the fact that the company is marketing its ESG prowess.
ESG Considerations
There are many broad measures that indicate Kodak is making strong ESG improvements that could help its prospects. One study shows that strong ESG scores in environmental issues tend to positively affect stock performance.
The good news is that Kodak is going to reduce greenhouse gas emissions and water consumption by 25% by the year 2025. The company’s computer-to-plate technology results in a 95% energy savings over alternative platforms.
Kodak estimates that if the entire industry used its SONORA plates, it would result in 24 million kWh of saved electricity and 507 million gallons of water saved annually.
Kodak also recycles large quantities of solvents used in the printing process. It has developed processes to recover useful materials from solvent waste byproducts. It then reuses or sells those solvent byproducts, which often are higher grade purity than the industrial product itself.
What to Do With KODK Stock
Most pundits counted Kodak out a long time ago. It was an unlikely meme stock that garnered lots of retail investor attraction earlier in the pandemic. Then it faded away.
But the strong earnings report could reinvigorate it. If ESG marketing works for the firm, that too could raise prices. Just watch trading volume along the way. It is not a surefire bet by any means, but Kodak has reinserted itself into relevance again.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
