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Analyst actually thinks Kodak will rise over 400%

Rolls of Kodak TMax film are seen on a camera store shelf in New York, Jan. 5, 2012.

BRENDAN MCDERMID/Brendan McDermid/Reuters

When news broke Wednesday that Eastman Kodak is considering filing for bankruptcy protection, Rafferty Capital Markets analyst Mark Kaufman looked a bit foolish with a "buy" rating and $5.50 (U.S.) price target as the shares plunged below 50 cents.

So, on Thursday, Kaufman made it up to those investors who follow his research. He downgraded Kodak to – wait for it – "hold" with a $2.75 price target. That implies the stock of a company that may file for Chapter 11 would rally more than five-fold over the next year.

The Wall Street Journal reported Wednesday that Kodak is preparing to seek bankruptcy protection as it continues to find buyers for some of its patent portfolio. If the last-ditch move to sell the patents fails, Kodak is making the preparations for the Chapter 11 filing, which includes asking banks for $1-billion in financing, the Journal reported.

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But only a week ago, Kaufman came out with an endorsement for Kodak. He argued that the recent appointment of Laura Quatela to co-president "signals Kodak may be positioning itself for a major corporate restructuring to simultaneously unlock its asset value and provide added liquidity."

It turns out Kaufman was right about a restructuring, but wrong in assuming it would be in the corporate offices. In his downgrade note released today, Kaufman argues that "a Chapter 11 bankruptcy would amount to a strategic manoeuvre, which perverse as it may seem, could actually preserve more value for all of Kodak's investment constituents including the equity than other options it is likely considering."

Kaufman's logic is that a Chapter 11 filing would allow Kodak to borrow more than the $600-million the company is currently allowed under debt indentures. He also argues that the $1-billion credit line from banks that the Journal reported would be more than ample liquidity for Kodak to survive 2012.

Still, Kaufman cut his rating on Kodak to "hold" and sliced his price target in half because of "the heightened uncertainty about the actual timing and manner of a digital patent portfolio transaction and/or other liquidity events." In doing so, Kaufman still argues that Kodak's asset values "are not likely to be impaired by a strategic Chapter 11 bankruptcy reorganization." In this case, it's all about the headline risk.

Kaufman isn't the only analyst with a "hold" rating on Kodak. Argus Research and Brean Murray also recommend holding on to shares of the company. The difference, though, is that those firms last made the "hold" call in November. Four other research shops covering Kodak all have "sell" ratings, including Citigroup and Deutsche Bank, which haven't updated investors on the company since early November.

It doesn't take a research analyst's call to get the real sentiment on Eastman Kodak, though. As one person tweeted yesterday in separate posts, "$EK filing Chapter 11 – this didn't happen 10 years ago???? Why were we not all short this stock a year ago? Just say it, dumb, lazy, what?"

That doesn't sound good for the prospects of a stock that rallies 500 per cent in a year. And by the way, shares of Kodak were down another 12 per cent Thursday to 41 cents - and today were down another 3 cents by later afternoon.

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