As everyone is well aware by now, CVS said that it will stop selling tobacco products over the next several months.
That's a big deal for the company since tobacco products are responsible for $2 billion out of the company's $125 billion revenue each year. Since CVS is trying to position itself as a healthcare provider, selling a product that's the nation's leading cause of preventable deaths would happen be a conflict of interest.
With shares of CVS down nearly 1% on Wednesday after the announcement, what can investors expect ahead for this stock?
Steven Pytlar, Chief Equity Strategist at Prime Executions, says the technicals were going against CVS even before Wednesday's announcement.
"The charts look like there could be some addition downside risk to the near-term," says Pytlar. "The reason we think that is because at the end of December, there was a very sharp rise in the stock but that was quickly reversed to start January."
According to Pytlar, it was a bad sign buyers didn't come in when the stock fell earlier last month. Pytlar says there are two possible explanations for this. One is a "buying exhaustion", which means everyone who could possibly want to buy the stock already did. However, he sees another reason as more plausible.
"The other is that expectations have changed," says Pytlar, "that they're deteriorating, and that the valuation of the company is actually declining. And, we think that is what this chart is telling us about CVS right now."
Steve Cortes, founder of Veracruz TJM believes the company's exit from tobacco was a small sacrifice and a good move for the company from business perspective.
"It's too small of a percentage of revenue," says Cortes. "But, I think this is a very strong move for the company if for no other reason than just the PR aspect, the fact that we're talking about it right now. That kind of earned media coverage and goodwill is significant."
As well, the change in policy is consistent with the company's future, says Cortes.
"Selling tobacco is yesterday's business," says Cortes. "The future in an aging society is healthcare and I think that CVS is positioned exactly correctly for that kind of an aging demographic society."
To see the entire discussion on CVS with Cortes on the fundamentals and Pytlar on the technicals, watch the video above.
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