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Inside Wall Street


Kodak: Coming Out of the Darkroom?

If you're a contrarian, you'll probably like Eastman Kodak (EK), which is currently a pariah on the Street. Three out of 10 major analysts rate it a sell. The rest are neutral. And if you're a value investor seeking underpriced assets, you'll love Kodak, the world's No. 1 photography company. Its stock skidded to a new 52-week low of 21.42 on Dec. 18, down from 30 in June.On Dec. 19 it inched up to 21.94. Kodak has been restructuring since 2003, focusing on digital photography, where it has been playing catch-up, and slashing costs. It lost money in 2005 and 2006, but that could change."We expect to see the benefits in 2008 in the form of strong cash flow and profitability," says Gregory MacArthur, president of investment firm Viewpoint 2000. Bolstering its digital and inkjet printing businesses should beef up Kodak's excess cash flow, which could be used to buy back shares or maybe even pay a special dividend, says MacArthur. He expects the stock to hit 28 in six months and climb to at least 32 in 12 months. Another Kodak bull is Bill Miller of Legg Mason Capital Management (LM), which still has a 17% stake. One neutral voice is Ananda Baruah of Banc of America (BAC). Recent strength in digital cameras "is encouraging, but Kodak needs sustained momentum and a strong push in its nascent inkjet business," he says. But even Baruah sees profits of 93 cents a share in 2007 and $1.10 in 2008 vs. a 41 cents loss in 2006.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Aldabra: A Nose for Acquisitions

"Special-purpose acquisition companies" (SPACs), formed specifically to buy other companies, can be big investment wins if they buy attractive assets. One with home run potential is Aldabra 2 Acquisition (AII), which trades on the American Stock Exchange at 9.77 a share. It is buying the paper and packaging assets of Boise Cascade from the private equity firm Madison Dearborn Partners. OfficeMax (OMX), a big Boise customer, and Dearborn will own 40% of Aldabra when the $1.7 billion deal closes in February. Steven Eick of Forest Investment Management, which owns 3.2%, values Aldabra at $20 a share based on projected 2008 EBITDA of $4.90 a share. Mickey Schleien of Ladenburg Thalmann Financial Services (LTS) figures a boost in output and possible listing on the Big Board could help lift Aldabra's stock.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Inspire's Plump Pipeline

Inspire Pharmaceuticals (ISPH) has a lot going for it, including AzaSite, launched in August, 2007, to treat conjunctivitis. It also has several drugs in the pipeline, all in phase III trials: Among them are Denufosol for cystic fibrosis and Epinastine for allergic rhinitis (inflammation of nasal mucous membranes). Prolacria, for dry eye, will be in pivotal trials in 2008. AzaSite sales are expected to hit $45 million in 2008, but Denufosol could be the big driver for growth. Liana Moussatos of Pacific Growth Equities rates Inspire, now at 5.02, down from 8 in April, a buy. She values the stock at 30 in 12 months, based on the prospects of AzaSite and the other drugs. Warburg Pincus just invested $74 million in Inspire for a 25% stake. Given its late-stage drugs and Warburg's role, the stock is a buy, says David Steinberg of Deutsche Bank (DB).

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.


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