Today kicks off a news roundup on the companies in our Foolish Four Portfolio, and we begin with Eastman Kodak, which is up about 16% in the past four weeks. The company has not only reported good news regarding its film sales, but its shares have also been purchased by Legg Mason fund manager Bill Miller, one of the few mutual fund managers to beat the S&P 500 for the past nine years.
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Today, let's check in with Eastman Kodak <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %>, which is up more than 16% since late July (though it's still down about 3% since January 1). The company has been on the receiving end of some bullish news recently, which is none too soon for those of us with shares of the company in our portfolios.
Last week, specifically on August 8, the company ticked up a little over 4% when it was noted by several analysts that the company's film sales were gaining market share while prices remained stable. The company had warned previously that its market share dropped 1% in the first half of this year, but more recent information from retailers indicated that Kodak had turned the trend around this summer, gaining 2% of market share in the four weeks ending July 16.
Kodak has been fighting Fuji Photo for market share for several years, with occasional price wars between the two taking their toll on Kodak's sales growth. Yet there are no signs of the widespread price cuts that many analysts expected after the drop in market share in the first half of this year.
A more interesting development was a report on Wednesday indicating that the most successful mutual fund manager of the 1990s, Bill Miller of Legg Mason, has purchased shares of Kodak, and is quite bullish on the company's prospects. In a letter to shareholders of his Value Trust mutual fund, Miller writes that Kodak "is worth close to $100," according to a Bloomberg report. (Anyone can access Legg Mason quarterly reports on the Web, though it doesn't appear the second-quarter report has been posted yet.)
Miller continues, "We expect the company to generate free cash equal to almost half of its current market capitalization over the next five years." If you're not familiar with the concept of free cash flow, it's worth boning up on -- there have been plenty of excellent articles in the Rule Maker Portfolio about it. Essentially, free cash flow is what is left in actual cash earnings after a company makes the capital expenditures necessary to maintain its business. Free cash flow is the money a company uses to pay dividends, repurchase its shares, or reinvest in its business for further growth down the road.
In 1999, Kodak generated $893 million in free cash flow, and in 1998 and 1997 the free cash flow figures were $375 million and $595 million, respectively. These are pretty decent numbers, given that the company's market cap is currently only about $18 billion. The fact that someone of Miller's caliber believes Kodak's free cash flow generation will continue to grow, and is willing to buy shares in the company as a result, is a positive development for the world's leading photography company.
For more about Legg Mason, check out this recent Smart Money article. And for more on Kodak's finances, take a look at Ann Coleman's report on the company's latest quarterly earnings last month.
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