Kodak Surges As It Pivots To Drugs
The Eastman Kodak Company, which was founded in 1888, was a dominant company in the photography industry for about 100 years before you could take pictures on your phone.
As photography shifted to digital, Kodak became increasingly irrelevant and filed for Chapter 11 bankruptcy protection in January 2012. After selling various business units and many of its patents, Kodak emerged from bankruptcy in September 2013.
Ever since, Kodak has slowly drifted further into irrelevancy. Shares of Kodak fell all the way from a high near $40 per share a few months after it emerged from bankruptcy to the $2 per share range over the last few months.
As 2020 has consistently proven anything can happen, Kodak validated that theory this week as it has now become the latest hot stock. The U.S. government is giving Kodak a $765 million loan to produce drug ingredients under the Defense Production Act.
The loan is the first of its kind provided by the U.S. International Development Finance Corp., which is working with the Department of Defense to rebuild the national stockpile of medical supplies using American companies.
"With this new agreement, my administration is using the Defense Production Act to provide a $765 million loan to support the launch of Kodak Pharmaceuticals," U.S. President Donald Trump said. "Kodak will now produce generic active pharmaceutical ingredients, which is a big deal. Using advanced manufacturing techniques, Kodak will also make the key starting materials that are the building blocks for many drugs in a manner that is both cost-competitive and environmentally safe."
"Kodak is proud to be a part of strengthening America's self-sufficiency in producing the key pharmaceutical ingredients we need to keep our citizens safe," Kodak CEO Jim Continenza said. "By leveraging our vast infrastructure, deep expertise in chemicals manufacturing, and heritage of innovation and quality, Kodak will play a critical role in the return of a reliable American pharmaceutical supply chain."
Shares of Kodak jumped more than 200% on Tuesday, marking the stock's best one-day performance. Yesterday, investors continued to bid up Kodak as it reached a high of $60.00 per share before closing at $33.20, finishing with a gain of more than 300%. Shares of Kodak, which has now seen its market capitalization go from just over $100 million on Monday to $1.5 billion yesterday, were halted more than 15 times throughout the day due to volatility.
However, as is usually the case, it appears some investors may have been given the tip of a lifetime as Kodak shares jumped more than 25% on Monday when it was still just the irrelevant camera company.
Continenza was asked about the heavy volume in the stock on Monday, which at more than 1.5 million shares traded was well above the average of less than 100,000 shares traded per day over the previous few days. "This has been a pretty tight kept secret," Continenza said before laughing when told it didn't appear to be a well kept secret.
Just a few days ago Jay Clayton, Chairman of the U.S. Securities and Exchange Commission, said he's worried about retail investors turning to short-term trading as opposed to long-term investing. With more than 100,000 Robinhood users adding Kodak to their portfolio over the last three days, it's almost certain this will not end well.
Fed says much of the same. The U.S. Federal Reserve repeated its commitment to use its "full range of tools" to support the economy as all of the FOMC members voted to leave interest rates unchanged in a target range between 0% and 0.25%. "The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals," the FOMC statement said. "The path of the economy will depend significantly on the course of the virus."
Mortgage demand stalls. Mortgage applications to purchase a home fell 2% last week and remained 21% higher than the same period a year earlier, according to the Mortgage Bankers Association's seasonally adjusted index. Refinance applications fell 0.4% last week and remained 121% higher than the same period a year earlier as 30-year fixed-rate mortgages remain near record lows. The average rate for an FHA-backed 30-year fixed-rate mortgage, which accounted for 35% of closed sales last month, rose to 3.27% from 3.13% last week signaling higher rates may take them out of the market to purchase a home.
Investors make a move for TikTok. Some investors in TikTok parent ByteDance, including Sequoia and General Atlantic, have proposed transferring majority ownership of TikTok to them as pressure on the app builds. Investors are valuing TikTok at $50 billion, giving it a valuation of 50 times its projected 2020 revenue of about $1 billion. It's unclear whether TikTok will accept an offer at a valuation of $50 billion as private transactions earlier this year valued the company at $140 billion. ByteDance, Sequoia and General Atlantic each declined to comment on the news.
USPS gets relief. The United States Postal Service has struck a deal with the U.S. Treasury to receive a loan of up to $10 billion for coronavirus relief. Postmaster General Louis DeJoy said the loan would delay an "approaching liquidity crisis" but not solve all of the post office's financial problems. "The Postal Service, however, remains on an unsustainable path and we will continue to focus on improving operational efficiency and pursuing other reforms in order to put the Postal Service on a trajectory for long-term financial stability," DeJoy said.
GM wants to repay its loan. General Motors said it believes it can repay the $16 billion loan it received by the end of the year if the economy recovers from the coronavirus and further production shutdowns can be avoided. "Obviously, it is still a very fluid situation as you know and we're watching the virus, the economy and its impact on the overall industry very closely," GM CFO Dhivya Suryadevara said.