What Does the Cigarette Ban Mean for CVS?

by Charles Sizemore | February 6, 2014 9:29 am

What Does the Cigarette Ban Mean for CVS?

I joined Fox Business’ Varney & Co. this morning to discuss the controversial decision by CVS Caremark (CVS[1]) to stop selling cigarettes and other tobacco products in its pharmacy stores.

It would seem like financial suicide for CVS to give tobacco-using customers — who still account for one out of every five Americans[3] — a reason to choose their biggest rival, given that there is no material difference between the average CVS store and Walgreen’s store. For all intents and purposes, they are interchangeable to the average consumer.

CVS estimates the decision will cost the company about $2 billion in sales, though I expect the real figure will be significantly higher. Smokers buy more than just cigarettes. As I joked in the video, they buy everything from low-cost items like Cokes and gummy bears to higher-priced items like branded prescriptions.

At any rate, CVS pulls in more than $125 billion per year in revenues, so it’s hard to see the loss of tobacco being catastrophically bad for the company. But it does bring into question management’s commitment to act in the best interests of its shareholders.

Varney and I also chatted about Microsoft’s (MSFT[4]) new CEO, Satya Nadella[5], and agreed that he was a “safe” choice who will help the company make incremental changes, though he wasn’t the revolutionary we had hoped for. Nadella might prove us wrong, of course. But even if he doesn’t, Microsoft would seem to be an attractive stock at current prices, as the market appears to be pricing in no change to the status quo.

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long MSFT. Check out his new premium service, Macro Trend Investor[6], which includes a free copy of his e-book, The New Megatrend Investor: The Ultimate Buy-and-Hold Strategy That Will Make You Rich.

Endnotes:
  1. CVS: http://studio-5.financialcontent.com/investplace/quote?Symbol=CVS
  2. video.foxbusiness.com: http://video.foxbusiness.com
  3. one out of every five Americans: http://www.cdc.gov/tobacco/data_statistics/fact_sheets/adult_data/cig_smoking/
  4. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  5. new CEO, Satya Nadella: http://investorplace.com/2014/02/microsoft-ceo-satya-nadella-turn-microsoft-around-real-time-insight/
  6. new premium service, Macro Trend Investor: http://investorplace.com/order/?sid=SR8131

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