By Anirban Sen
NEW YORK (Reuters) – CVS Health (NYSE:) is exploring options including splitting the company to separate its retail and insurance units, as the struggling health care company looks to turn its fortunes around under pressure from investors. people familiar with the matter told Reuters.
CVS has discussed various options — including how such a split would work — with its financial advisers in recent weeks, the sources said, requesting anonymity because the discussions are confidential.
The plan to potentially split the company’s pharmacy chain and insurance operations has been discussed with the board of directors, which has yet to decide the best course of action for CVS, the sources said, cautioning that the plans have not yet been finalized. and CVS may choose a different strategy.
CVS is also discussing whether its pharmacy benefits manager unit, which manages drug benefits for health care plans, should be placed within the retail unit or under insurance if it were to proceed with a separation that could result in two publicly traded companies, the sources said. .
Such a move would effectively reverse CVS’s historic $70 billion acquisition of health insurer Aetna in 2017 and comes at a time when CVS is trying to navigate one of the most challenging periods in its six-decade history.
A CVS spokesperson declined to comment on whether discussions are underway to explore options.
“CVS’s management team and Board of Directors continually explore ways to create shareholder value,” the spokesperson said. “We remain focused on improving performance and delivering high-quality healthcare products and services, powered by our unparalleled scale and integrated model.”
The latest discussions come as CVS faces increasing pressure from investors such as Glenview Capital, which is reportedly pushing for changes at the company to help improve its business after it cut its 2024 earnings guidance for a third straight quarter in August.
CVS, which has a market value of about $79 billion and had long-term debt of roughly $58 billion at the end of December, cut its annual earnings forecast in August to $6.65 per share from $6.40, down from its previous forecast of at least $7.00 per share . .
“While we view management’s adjusted 2025 EPS growth target as achievable, we believe that the uncertainty surrounding 2024 performance, as well as the outcome of CVS’s 2025 Medicare Advantage bids, creates unclear prospects for 2025 and beyond” , say analysts at TD Cowen. wrote in a note dated August 11.
RISING COSTS, FALLING STOCK COSTS
CVS recently announced the departure of Aetna head Brian Kane after its Medicare business, which targets Americans 65 and older, underperformed due to rising costs for medical services, and initiated a $1 billion cost-cutting plan . Aetna currently generates about a third of CVS’s total revenue.
It’s fair to say that CVS isn’t the only health insurer facing higher medical costs. UnitedHealth Group (NYSE:) flagged rising costs earlier this year, and Humana (NYSE:) suggested in its most recent quarterly results that costs would remain high this year.
CVS is led by healthcare industry veteran Karen Lynch, who previously led the Aetna unit and is temporarily overseeing operations along with Chief Financial Officer Tom Cowhey.
The company’s shares have lost nearly a quarter of their value so far this year, underperforming , which has risen nearly 21% over the same period. According to an analysis of LSEG data, it is currently trading at a discount to most of its top competitors.
CVS trades at a multiple of seven times earnings before interest, taxes, depreciation, and amortization, compared to nearly fourteen times for UnitedHealth and roughly nine times for Cigna (NYSE:).
“While we recognize that the medical insurance and PBM businesses are currently experiencing challenges, we agree with management, as highlighted at last year’s investor day, that the long-term weak link at CVS will likely be its namesake pharmacies are,” said Julie. Utterback, analyst at Morningstar. “So unless there is a solution, such as substantially expanding health care services in those stores in the near future, a strategic change there may be necessary.”
Founded in 1963, CVS has its roots in retail pharmacy and operates more than 9,000 stores, primarily in the US. CVS has grown its various businesses through a number of notable acquisitions, including pharmacy benefits manager Caremark, Medicare home health company Signify Health and Oak Street Health. a primary care provider for Medicare patients.
