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Morgan Stanley Thinks CVS Surcharge May Replace Lost Tobacco Revenue

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CVS Health Corp's (NYSE: CVS) could get up to a 6 percent boost in retail revenue from its plan to add a surcharge to prescriptions filled through its benefits management network by pharmacies that sell tobacco, an analyst said Wednesday.

CVS, which recently stopped selling tobacco, on Tuesday unveiled the pilot program for its Caremark pharmacy benefits management business with more than 65 million members.

Morgan Stanley's Ricky R. Goldwasser called the plan a "$3.6 billion revenue opportunity" for CVS and said it represents a risk to Walgreen Company (NYSE: WAG) and Rite Aid Corporation (NYSE: RAD), both of which continue to sell tobacco and fill prescriptions managed by Caremark.

Separately, other analysts have estimated that by discontinuing tobacco sales, CVS is foregoing $2 billion in annual revenue.

The company hopes to outweigh the loss from tobacco sales partly by currying favor with public and private health insurers that are Caremark customers.

CVS said Tuesday that the surcharge plan comes at the request of customers it didn't identify.

Revenues from CVS' pharmacy benefits management segment increased 16.2 percent in the quarter ended June 30 to $21.8 billion. Revenues in its retail segment grew 4.5 percent to $16.9 billion.

The surcharge plan "may increase pressure" on Walgreen and Rite Aid to stop selling tobacco, Goldwasser said.

CVS is expected to post earnings on November 4 of $1.13 per share, up 11 percent from a year earlier, on revenue of $34.73 billion.

CVS traded recently at $83.22 a share, up 0.4 percent.

Latest Ratings for CVS

DateFirmActionFromTo
May 2019MaintainsBuyBuy
Apr 2019MaintainsOverweightOverweight
Apr 2019MaintainsStrong BuyStrong Buy

View More Analyst Ratings for CVS
View the Latest Analyst Ratings

Posted-In: Morgan Stanley Ricky R. GoldwasserAnalyst Color News Retail Sales Analyst Ratings

 

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