Buy Kodak Shares Now: Analyst

ROCHESTER, N.Y. ( TheStreet) -- Eastman Kodak's ( EK) shares spiraled downward Monday after the imaging company said late Friday it drew $160 million against its credit line, but one analyst said the decline is a great buying opportunity since a lucrative patent sale is imminent.

Kodak shares shed 24% to $1.81 amid very heavy trading. More than 19.5 million shares changed hands less than halfway through the trading session, compared with their average daily volume of just 14.5 million.

Kodak said late Friday it was borrowing the funds "for general corporate purposes," according to a filing with the Securities and Exchange Commission. With an interest rate of 1.5%, Kodak has until 2016 to repay the loan. The draw followed Kodak's move in April when it entered into an agreement for a new credit facility of up to $400 million.

"The purpose of the revolving credit facility is to bridge timing differences between cash outflows and inflows, which is a common practice at many corporations," Kodak said on Monday.

But Monday's share price plunge indicated that investors were concerned with Kodak's ability to operate with the cash it already had on hand. Kodak has been marketing its trove of digital imaging patents, a sale of which could prove quite lucrative, but no bidders have officially stepped forward yet.

Rafferty Capital Markets analyst Mark Kaufman was confident Kodak could repay the $160 million loan on time, and that a patent sale was likely imminent later this year, while Cross Research analyst Shannon Cross cut her price target on the company to $1 citing the "unexpected cash usage."

"Investors are selling first and asking questions later," Kaufman told Bloomberg. He suggested that Monday's share price decline was a buying opportunity, and said that expectations for a patent sale "in such a short period of time would be naive. I've been thinking more along the lines of November or December."

Reports surfaced last month that Kodak was working to sell off its patents. Kodak has struggled to gain momentum in its digital camera business as its printing business flailed, but its digital-imaging patents could be worth far more than the 131-year-old camera company itself, fetching as much as $3 billion, according to some analysts.

CEO Antonio Perez said in late August that Kodak was in talks with potential buyers, and had signed confidentiality agreements with possible bidders for at least 1,000 Kodak patents.

If Kodak is able to sell its patents, and get as much as $3 billion for them, it would buy the company time to give its inkjet printer business a much-needed boost, according to Gimme Credit analyst David Novosel.

Kodak has been putting more of an emphasis on its printer business lately, picking up market share from Hewlett-Packard ( HP) and Canon ( CAJ) along the way, attracting consumers with more printing features and less-expensive ink.

Even with a patent sale, Kodak intends to hold onto the licensing rights to its proprietary technology.

Kodak CEO Perez is looking for buyers willing to pay cash for the patents, but only wants to sell "the part of the portfolio that does not apply to the core investments and the future of the company."

The marketing of patents is a smart move for Kodak -- a company that has struggled after years of annual losses -- particularly in light of M&A news in August that Google ( GOOG) has agreed to acquire Motorola Mobility Holdings ( MMI) at a hefty premium, largely for the accumulation of 17,000 technology patents the target holds. Google is hoping the move will allow it to better compete with Apple's ( AAPL) iPhone.

Despite Kodak's $1.2 billion pension shortfall, potential acquirers like Microsoft ( MSFT) and Samsung Electronics could benefit greatly from Kodak's patents -- technologies used in a bulky 85% of all digital cameras and smartphones -- Rafferty Capital Markets told Bloomberg last month.

Investment bank Lazard began marketing Kodak's roster of patents in August, and interested parties included a large wireless provider, according to reports in The Wall Street Journal.

-- Written by Miriam Marcus Reimer in New York.

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