Grocery Stores will Love it
Imagine going to the grocery store, picking up your items and then walking out past a scanner that would simultaneously read all the items in your cart, charge you for those items and adjust the store’s inventory without waiting. Korean and American university researchers are currently working on a printable transmitter that can be permanently attached to a products packaging that not only would make this happen, but inexpensively so. Large grocers like Safeway (NYSE:SWY), Kroger(NYSE:KR) and Whole Foods (NYSE:WFMI) would jump at the opportunity to reduce labor costs, manage inventory more efficiently while greatly enhancing the customer experience.
No Longer just Trendy
Mark Roberti, founder of the RFID Journal, a leading publication dedicated to radio frequency identification technology, wrote in a recent column that RFID pilot projects were a thing of the past. He knows of at least three large companies going ahead with enterprise-wide RFID system implementation. First movers gain strategic advantage in their respective industries. You can be sure those still on the fence will be getting off it shortly. There’s too much at stake. (For more on free cash flow, take a look at Analyze Cash Flow The Easy Way.)
Back in 2008, Checkpoint Systems (NYSE:CKP) bought OAT Systems, an RFID middleware (software integration) company, for $37.2 million. The deal gave it an end-to-end RFID solution for its global customers. For OAT, it gained the infrastructure necessary to compete worldwide. The deal seemingly signaled the beginning of a consolidation push. It never materialized. Two years later, it’s probably on the front burner once again. Who’ll be buying and selling is anybody’s guess. With free cash flow above $100 million for the first time since 2002, I do think Checkpoint will make a small acquisition in 2010, although I’m not convinced RFID-related purchases are on its to-do list.
Other Potential Investments
Besides Checkpoint, several public companies operate RFID-related businesses. By market cap, the biggest isMicrosoft (Nasdaq:MSFT), followed by Danaher (NYSE:DHR), Motorola (NYSE:MOT), Tyco Electronics(NYSE:TEL), Roper Industries (NYSE:ROP) and MeadWestvaco (NYSE:MWV). The smallest of the bunch is MeadWestvaco at $4.4 billion. These are not tiny companies. An investment in any one of them gets you much more than just RFID, making it a good way to dip your toe into the water.
The potential of RFID is limitless. Having said that, a margin of safety is also important. Therefore, despite good free cash, it’s safe to defer decisions on Checkpoint Systems at this point. It’s not a bad company, but it’s safer to bet on one of its clients instead.