Credit-card companies are targeting 11.5 million U.S. vending machines in stores, factories, colleges, hotels, and offices. USA Technologies (USAT) is the largest maker of the e-port devices that enable vending machines selling soft drinks, snacks, and laundry products to accept plastic. So far, only 12,000 machines accept cards. MasterCard Worldwide and Coca-Cola Enterprises, major distributors of Coca-Cola products, are big supporters of fitting vending machines with e-port devices. In April, six large vending companies agreed to install 5,000 e-ports to accept MasterCard PayPass (MA) in their machines. And several prominent bottlers, including Coca-Cola Bottling Co. and Cadbury Schweppes Americas Beverage, whose brands include Dr Pepper, 7UP, and Snapple, have also signed up.
SAC Capital Associates, led by billionaire trader Steven Cohen, was so impressed with USAT's e-port devices that it bought $10 million worth of USAT stock, for a 15% slice. Another big stakeholder is Wellington Management, which owns an 8.1% stake. Credit-card transactions could hike vending sales by 32%, says Michael Shonstrom of Emerging Growth Equities. He rates the stock a hold, but says USAT has "substantial upside if major industry adoption develops." Luis Martins of Taglich Brothers figures sales will rise to $16.2 million in 2008, from $9.8 million in 2007. He sees the stock, now at 7.90, at 11 at yearend. CEO George Jensen says that vending machines, excluding laundry and kiosks, produce cash transactions of $46 billion annually. "We have only begun to penetrate this huge market," he says.
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.
By Gene G. Marcial