By Anirban Sen
NEW YORK (Reuters) – CVS Health is exploring options that could include breaking up the company to separate its retail and insurance units, as the struggling health care services company looks to turn around its fortunes amid 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, asking not to be identified because the discussions are confidential.
The plan to split the company’s pharmacy chain and insurance business has been discussed with the board, which has not yet decided the best course of action for CVS, the sources said, warning that the plans have not yet been finalized. CVS may choose a different strategy.
CVS is also discussing whether its pharmacy benefits management unit, which manages drug benefits for health plans, should be housed within the retail unit or under insurance, if it were to move forward with a spinoff that could result in two publicly traded companies, the sources said. .
Such a move would effectively undo CVS’s landmark $70 billion acquisition of health insurer Aetna in 2017, and comes as CVS tries to navigate one of the most challenging periods in its six-decade history.
A CVS spokesman declined to comment on whether it was in talks to explore options.
“CVS’s management team and board are constantly exploring ways to create shareholder value,” a company spokesperson said. “We continue to focus on enhancing performance and delivering high-quality healthcare products and services thanks to our unparalleled integrated model.”
The latest discussions come as CVS faces increasing pressure from investors such as Glenview Capital, which is said to be pushing for changes at the company to help improve its operations, after it cut its 2024 earnings forecast for the third straight quarter in August.
CVS, which has a market capitalization of about $79 billion and had long-term debt of about $58 billion at the end of December, in August cut its annual earnings forecast to $6.40 to $6.65 per share, from its previous forecast of at least $7.00 per share. .
“While we view management…that our 2025 adjusted EPS growth target is achievable, we believe uncertainty about performance in 2024, combined with the results of CVS’s 2025 Medicare Advantage offering, creates an uncertain outlook for 2025 and beyond.” “,” TD Cowen analysts wrote in an August 11 note.
High costs, lagging stock prices
CVS recently announced the exit of Aetna President Brian Kane after its Medicare business, intended for Americans 65 and older, underperformed due to rising medical costs, and began a $1 billion cost-cutting plan. Aetna currently generates approximately one-third of CVS’s total revenue.
CVS is certainly not the only health insurer facing higher medical costs. UnitedHealth Group (NYSE:) flagged increased costs earlier this year, and Humana (NYSE:) indicated in its most recent quarterly earnings that costs will remain high for the year.
CVS is led by health care industry veteran Karen Lynch, who previously headed the Aetna unit and is interim overseeing the business with CFO Tom Cohey.
The company’s shares have lost nearly a quarter of their value so far this year, an underperformance of the company’s stock, which has risen nearly 21% over the same period. It currently trades at a discount to most of its larger peers, according to an analysis of LSEG data.
CVS trades at a multiple of seven times EBITDA, compared to nearly 14 times UnitedHealth and about nine times Cigna (NYSE:).
“While we recognize that our medical insurance and PBM operations are currently experiencing problems, we agree with management, as emphasized at last year’s Investor Day, that the long-term weak link at CVS is likely to be its namesake retail pharmacy stores,” Jolie said. . Utterback, a Morningstar analyst. “So unless there is a solution, such as significantly expanding healthcare services in those stores in the near future, a strategic change may be necessary there.”
Founded in 1963, CVS has its roots in retail pharmacies, operating more than 9,000 stores primarily in the United States. CVS has grown its diversified business through several notable acquisitions, including pharmacy benefits manager Caremark, Medicare home health company Signify Health, and Oak Street Health. Primary care provider for Medicare patients.
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