June 24 (Bloomberg) -- Eastman Kodak Co., the 128-year-old photography company shifting its focus to digital products, climbed the most in more than two decades in New York trading after it said it would use a tax refund to buy back as much as $1 billion of stock.

Kodak surged $1.69, or 14 percent, to $14.03 at 4 p.m. in New York Stock Exchange composite trading, the biggest percentage gain since Oct. 20, 1987, the day after the Black Monday stock market crash. The stock has lost half its value in the past five years on declining demand for traditional film products.

The repurchase accounts for 28 percent of outstanding shares and is the first under Chief Executive Officer Antonio Perez, who has worked to return Kodak to profitability through sales of digital cameras and inkjet printers. The company may have faced investor pressure to buy back the stock, which reached a 12-month low yesterday, said Shannon Cross, an analyst with Cross Research.

``It doesn't change the fundamental performance of the company and the important thing is their ability to bring in new investors,'' said Cross, an analyst with the Livingston, New Jersey firm who has a ``sell'' rating on the stock.

The Rochester, New York-based company will buy back as much as $1 billion in stock through 2009. That accounts for about 81 million shares at yesterday's closing price of $12.34, or 28 percent of the 288.2 million shares outstanding as of April 25.

Kodak plans to fund the majority of the stock repurchase program from the $581 million tax refund, the company said in a statement today. The company had about $2.2 billion in cash on hand at the end of the first quarter and $1.6 billion in debt.

`Positive' Move

``This is a very healthy move for Kodak and I anticipate more companies will do the same thing,'' Rusty Robinson, president of Robinson Investment Group in Brentwood, Tennessee, said in an interview with Bloomberg Radio. His firm owns Kodak shares as part of the $160 million it manages. ``It's a positive every time a company announces a stock buyback and this is a sizeable amount.''

Moody's Investors Service said the buyback won't affect Kodak's B1 corporate debt rating. The rating classifies the bonds as junk, meaning they are high-yield, high-risk debt.

``Kodak has ample liquidity and financial flexibility to accommodate share repurchases of this magnitude within its existing ratings,'' Richard Lane, Moody's senior vice president, said in a statement.

The refund will add $574 million to second-quarter earnings, the balance remaining after state income taxes are paid, Kodak said. The refund comes from an audit of the company's taxes from 1993 to 1998 and includes $306 million in overpaid taxes and $275 million in interest.

28,000 Jobs

Kodak halted a $2 billion buyback program in March 2001 to pay down debt and make acquisitions as sales of traditional film products slowed. Perez completed a four-year restructuring program to boost sales of digital products such as cameras and a new line of inkjet printers. Kodak has spent $3.4 billion to cut 28,000 jobs as demand for its film products continues to drop.

The company has been struggling to turn a profit and in April posted a first-quarter loss that was wider than analysts expected because of higher material and research costs. The company said in May it will raise prices as much as 20 percent on film, paper, printing plates and other items that use silver and aluminum.

Kodak was founded in 1880 by George Eastman, who introduced the first consumer camera in 1888. The Brownie camera, rolled out in 1900, made photography affordable for a wider audience, with a price tag of $1 and film that cost 15 cents.

To contact the reporter on this story: Courtney Dentch in New York at cdentch1@bloomberg.net.

Last Updated: June 24, 2008 16:24 EDT