CVS on Thursday was down $7.28 over 20 percent after new disclosure of $2B of pharmacy benefit management contract losses. CVS' market cap dropped about $10.5 billion ($7.28 x 1.445B shares outstanding) or 20.14 percent. [as of today still down $6.36 x 1.44b = $9.2 billion]

Assuming the contract losses are the cause -- and assuming they are permanent, i.e., never will be replaced, all else held constant, and that PBM produces the same 3.6% net income from revenue as CVS overall, which probably is conservative because its competitor MHS generates about 2% net, CVS is out about $74 million in net income from the new disclosure. Put an 11x multiple on that, and CVS's value should have declined by $830 million. Alternatively, put a comparable Medco 2% of sales number on it, and the comparable value of a $2B loss of revenue is $40 million x 11 = $440 million. About three to five cents per share net income lost to the $2B contract losses disclosed.

I've read an analyst's cut to CVS 2010 est. eps as large as .25, to $2.80. .25 x 1.44 b shares = a 360 million cut to estimated earnings from any and all sources not just the PBM. Assume that cut proves accurate and put an 11x multiple on that and I would expect the market cap to have dropped $3.96 b, or $2.5 per share, not $10.5 b or $7.28.

I figure CVS should not have declined more than the $2.75 drop implied by a 25 cent cut to 2010 eps and an 11x p/e. So Wednesday's $36.15 - est. cut after Q3 of $2.75 = $33.4.

Given the size of the market cap markdown versus what I calculate it should be, I may be missing something. Comments?