This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

CalPERS Applauds CVS Caremark's Tobacco Exit

CalPERS' support of CVS decision did not cite any economic reasons and characterized its statement in the vein of what is important to the fund's constituents.

The fund, however, has a long tradition on putting its money behind social issues that also have an economic element. When divesting tobacco stocks in 2000, CalPERS cited the risk of prolonged litigation to its investment. The fund held over $500 million worth of tobacco stocks at the time.

In 2011, CalPERS said it would divest its holding of companies doing business in Iran and Sudan, causing the fund to sell shares in eight firms worth a total of $160 million. The fund and the California State Teachers Retirement System (CalSTRS) have also recently been pressed by students and California state employees to divest their holding of fossil fuel companies.

CalSTRS, another CVS shareholder, declined on Wednesday to discuss the company's decision to end tobacco sales. However, the fund eliminated new investments in tobacco in 2000 and divested its portfolio of all tobacco in 2009 on the basis of its negative impact on human health and how the nature of that impact affects the industry's long-term profitability.

That investment decision was characterized as part of the fund's fiduciary duty to its members.

Fiduciary Duty and Public Policy

In coming weeks and months, will be interesting to see whether CVS's cessation of tobacco sales will be seen as a compelling fiduciary decision or not. It may also prove yet another example of the tension between short-term and long-term shareholder interests.

If investors were unimpressed by the move, analysts covering CVS's stock appear to believe it could benefit the company in coming years.

"While we expect this change might be a near-term headwind, we believe it will help CVS differentiate itself from other large retail pharmacies and it may be an incremental benefit to the PBM's selling season," Leerink Swann analyst David Larsen  said in a Wednesday client note.

Bank of America Merrill Lynch called the tobacco decision a "smart strategy" and noted that tobacco sales were not important to the company's profitability. "We believe the clipped contribution pales in comparison to likely political and social gains to be had with a widespread media focus [on Wednesday]."

"Stopping the sale of cigarettes and tobacco will make a significant difference in reducing the chronic illnesses associated with tobacco use," Troyen A. Brennan, CVS Caremark Chief Medical Officer, said on Wednesday

The company also said its decision to stop selling tobacco products reflected positions taken by the American Medical Association, American Heart Association, American Cancer Society, American Lung Association and American Pharmacists Association.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
CVS $100.12 -0.34%
AAPL $128.73 -0.17%
FB $78.81 -0.23%
GOOG $540.66 0.51%
TSLA $230.65 2.00%

Markets

DOW 18,070.40 +46.34 0.26%
S&P 500 2,114.49 +6.20 0.29%
NASDAQ 5,016.9290 +11.5380 0.23%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs