In November of 2003, corporate raider Carl Icahn picked as his latest prey photographic biggie Eastman Kodak, a one-time institutional darling that had fallen on hard times. The shares were then trading in the low $30s when the raider announced he had gotten regulatory approval to buy a large stake in the company. That, in turn, touched off a wave of takeover speculation and not surprisingly pushed the stock price a bit higher.

As it turned out, Mr. Icahn was strictly an idle threat. He never did acquire that large stake, and thank goodness he didn’t. If he had, he would have gotten bloodied as the stock subsequently plummeted. It now trades at $24.29, just a bit higher than its 52-week low of $20.77 and down roughly 25% from its 2004 close of $32.25.

A few months back, Barron’s, one of our favorite publications, also jumped aboard the Kodak bandwagon, boldly predicting the stock would double to $45 in three years as the company builds a profitable digital business.

That, of course, remains to be seen, but there are dissenters. In a commentary, a relatively new Big Apple newsletter, the Complete Investor, suggests Barron’s would do well to follow Mr. Icahn’s do-nothing lead, namely scrap its enthusiasm and its exuberant forecast. Noting that Kodak has missed consensus earnings estimates in each of its last two quarters and has stopped giving guidance for future periods – both clearly negative signs – the newsletter is urging subscribers to short the stock (a bet its price will fall).

Kodak’s chief problem, it points out, is its inability to make a successful transition from its rapidly declining traditional film business to the next big thing, digital products and services.

The problem, the newsletter observes, is the extremely competitive nature of the digital business and the relatively low barriers to entry.

The Consumer Electronics Association echoes such thinking. Noting that the average price for a digital camera dropped by more than 50% from 1999 to 2003, it expects this trend to remain in force due to new product introductions, the discounting of older inventory, and intensifying competition among industry players to snare bigger market shares. It may be, as one CEA spokesperson put it, that “Kodak is too late to the party.”

Taking note that Kodak has been buying new businesses and shedding old ones in an effort to stay relevant, the newsletter points out that in the process the company has added considerable debt, with its total debt-to-capital ratio now a high-above 60%. With this much debt, it goes on, the company needs steady cash flow to keep operating and paying its 2.2% dividend. But its traditional businesses, which account for half its revenues, keep dwindling. Yet another blow: the impending switch by movie theaters to digital equipment.

The newsletter, which describes Kodak as “a value trap” because of the appeal of its sharply declining stock price, points out that the company is in the midst of a major restructuring, the success of which is critical to its survival. Meanwhile, it notes, the only thing to cause its stock price to spike up has been takeover rumors. However, with Kodak’s traditional film business becoming ever less valuable and with many of its assets up for sale, it believes few potential buyers for the entire company will emerge. As such, it predicts the stock’s decline will go on, which explains its recommended short sale.

Arnold Silver, a Los Angeles day trader who is short Kodak in some of his managed accounts, agrees. Observing that “a lot of people tell me Kodak is a turnaround situation and a real cheap stock,” he believes just the opposite is the case and, in fact, fattened his short position, when, he notes, Barron’s bulled the stock. Unfortunately, he says, “Barron’s has unwisely hitched its wagon to a falling star.” Mr. Silver believes the bulls may still be thinking of Kodak as a stock that once sold close to $100 share. But what they fail to realize, he says, is that “this is a different era, a different Kodak, and a much more difficult environment in which Kodak is a follower, not the leader.”

His price target – which he considers easily achievable – is $15 to $18 a share within the next six to 12 months.

In the past, Mr. Silver was also short Polaroid, another major photography company. He recalls that at the time he was also warned Polaroid was too cheap to short. “After it filed Chapter 11 bankruptcy, people finally stopped telling me that,” he says.