Investors spank CVS for banning cigarettes

Shares of CVS/Caremark fell about 1% in trading today after the national drugstore chain pledged to stop selling tobacco products in all 7,600 stores by October.

It's "an admirable decision given the paradoxical nature of a healthcare retailer selling carcinogenic substances," but the switch will cut sales by $2 billion, and profits by 3%, by next year, writes John W. Ransom, stock analyst at Raymond James & Associates Inc., in a report to clients today.

"We commend management for the decision," but don't expect shares to recover anytime soon: Tobacco is a relatively profitable product -- retailers keep about 15 cents of every dollar's worth of cigarette sales -- and CVS hasn't identified new sources of revenue to offset the loss to the stores'  already slim profit margins, Ransom added. Competing chains like Walgreens and discount retailers who still sell cancer sticks  "should be direct beneficiaries of the CVS decision," he concluded.