Walmart Curtails its Cigarette Business

American multinational retailer Walmart (WMT) has decided to stop selling cigarettes at some of its U.S. locations. The retailer confirmed the plan to drop cigarettes from some of its stores, after the Wall Street Journal earlier reported about it. Walmart operates more than 4,700 stores across the U.S.

The retailer has not revealed how many stores will discontinue cigarette sales. However, the Journal reported that Walmart has started removing cigarettes from stores in Florida, California, New Mexico, and Arkansas.

According to Euromonitor International estimates, U.S. cigarette sales hit $95 billion in 2021. Walmart accounts for about 5% of the country’s cigarette sales volumes, according to Goldman Sachs analyst Bonnie Herzog.

What Does This Move Mean for Walmart?

Walmart is only reducing its tobacco business instead of exiting the space completely, at least for now. It means the move should have minimal impact on the retailer’s revenue, and much less on its profit. The cigarette business is generally less profitable for Walmart than selling items like candy near the front of the stores, according to the Journal.

Even if Walmart decides to leave the tobacco business completely, it would still be fine. Retailer Target (TGT) and pharmacy chain CVS Health (CVS) quit selling cigarettes years ago and they have continued to do well. 

Cigarette smoking is linked to nearly 500,000 deaths in the U.S. each year. As Walmart works on expanding its healthcare business, reducing or quitting exposure to tobacco may improve its brand image in the healthcare market. 

Wall Street’s Take

The Street is cautiously optimistic about Walmart stock with a Moderate Buy consensus rating. That’s based on 17 Buys versus seven Holds. The average Walmart price target of $163.48 implies 12% upside potential to current levels. Shares have increased 8.5% over the past year.

News Sentiment

TipRanks data shows that the News Score for Walmart is currently Positive based on 50 articles published over the past seven days. Notably, 67% of the articles have a Bullish Sentiment compared to a sector average of 61%, while 33% of the articles have a Bearish Sentiment compared to a sector average of 39%.

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