CVS vs. Altria - Which Would You Rather Invest In?
One of the nation’s largest pharmacy chains, CVS (NYSE: CVS), announced last week that it planned to stop selling tobacco products by October 1, 2014.
The company cited the health of its customers as the rationale behind the move. The lost sales from the move, expected to be about $2 billion per year, are no small potatoes. But CVS is looking to make a branding pivot.
According to the company’s president, Helena Foulkes, the company is looking to reinforce and solidify its branding as a healthcare company. We thought it would be interesting to see how CVS stock fared in 2013 and beyond, when compared with that of Altria (NYSE: MO), one of the country’s largest tobacco companies.
A quick glance at the three-year chart for CVS stock shows a company that is consistently growing its share price. On January 2, 2013, the stock was heading steadily upward, as it had for several years, and cost $49.00 per share. Investors saw the stock move higher in early 2013, and it was trading over $60.00 per share by mid-June, before pulling back some in July.
Though the stock suffered some pressure through the summer and into the fall, it never pulled back below $55 per share. Investors who held strong though the stock’s mid-year equivocating were rewarded handsomely, as the stock surged in late 2013 to a $71.57 close – just about at yearly highs. For the year, CVS stock grew about 46 percent in value and beat the major indexes.
Altria stock has also been on a nice upswing over the past few years, with the overall charts showing that the stock favored upward moves. Coming into 2013, an investor could purchase a share of Altria for $32.00. The year saw many ups and downs from the stock, but the overall movements were generally in the range of $33.00 to $37.50, until the stock broke out in the late fall.
Altria was able to reach a yearly high of $38.58 in late December, and close near that high at $38.39 on December 31. For the year, Altria returned 20 percent – below both the S&P and the Dow.
It is telling that both companies’ stocks dropped by over 1 percent in the wake of CVS’s decision to stop tobacco sales. It is difficult, however, to predict the long term repercussions of CVS’s bold move to ban tobacco sales from its stores. Analysts are debating a number of side stories from the lost revenue, to asking why the company will continue to sell other unhealthy products, such as alcohol, to whether or not competitors will be compelled to follow suit.
For now, it is unclear how this decision will affect the profits and share prices of CVS or the tobacco companies that will no longer be welcomed there. But it goes without saying that the company must have thought the decision through carefully, as it is not the kind that is easily reversed.
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