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Tickers in this Article: EK, C, GE, USB
Eastman Kodak (NYSE:EK) has missed out entirely on the recent rally in the market, and is selling at a lifetime low. Is there any hope for this storied American icon? Although the S&P 500 has rallied more than 30% since the lows reached in March 2009, a few stocks have been left behind. Kodak initially joined the rally, but faded quickly and is now selling at just under $3 per share.
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Bad News
Admittedly, Kodak's recent news is not good. The company reported its first-quarter earnings in late April, and Kodak surprised the Street with a large GAAP net loss of $353 million or $1.32 per share. Sales totaled only $1.477 billion, a 29% decline year over year. Even worse, the company burned $808 million in cash in the quarter. Kodak suspended its dividend as well, which the company described as a way to "conserve cash and protect its investments in core digital growth businesses". Unfortunately for Kodak, even its digital "growth" businesses fell victim to the economy and the tight wallets of consumers and businesses. The company reported a 29% drop in revenue in this area as well.

Cutting Dividends
Many companies suspended or cut their dividends to cope with the recession. During the first quarter of 2009, 367 companies cut dividends. These include General Electric (NYSE:GE), which cut its dividend for the first time since 1938, and U.S. Bancorp (NYSE:USB), considered among the strongest of the nation's largest banks. Citigroup (NYSE:C), formerly the nation's largest bank, eliminated its dividend completely. This is a step that companies try not to do since some institutional investors are barred from buying stocks without a dividend. (To learn more, read How Dividends Work For Investors.)

Bull Case
The bull case for Kodak rests on several legs. Kodak did end the quarter with cash of $1.309 billion, compared to total debt of $1.309 billion. This puts the company in a zero net debt position. Kodak also just amended its credit agreement with its lenders, removing a major worry from the minds of some investors. The company burned a large amount of cash in the quarter, but the first quarter is typically its weakest seasonally, and was in line with last year's first quarter.

The economy, while still weak, seems to have turned the corner as what the market calls "greenshoots" continue to pop up. Also, expectations are certainly very low, and even a half-decent second quarter might see the stock pop higher. One potential problem is Kodak's convertible issue. Although it does not mature until 2033, the issue can be put back to the company at par on October 2010. Kodak will have to come up with $575 million if all the holders elect this option.

Bottom Line
Kodak is a risky play due to its cash burn, but with this higher risk comes a higher return potential, as the company is one of the few stocks that hasn't moved higher with the market rally. (For more on this topic, see Make Your Portfolio Safer With Risky Investments.)

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