CVS Health plans to split into two public companies by the first half of 2028, separating its retail pharmacies from its insurance and pharmacy benefit manager businesses. Analysts point to legislative pressure on vertically integrated healthcare companies as a likely driver. The company also reported third-quarter results that beat FactSet estimates on revenue and earnings.
CVS Health plans to split into two separate public companies by the first half of 2028, the company announced Wednesday. CVS stock was down 2.2% in premarket trading after the company confirmed the plan and shared its third-quarter results.
Insurance and Caremark stay under the CVS Health name
The plan would separate CVS's roughly 9,000 retail pharmacies from its insurance business and Caremark, one of the nation's three largest pharmacy benefit managers. The insurance and PBM company will keep the CVS Health name under CEO David Joyner, while the other company will be called CVS Pharmacy and led by Prem Shah, currently group president of CVS Health.
Existing CVS shareholders will own shares in both companies after the split. The move would reverse the company's $78 billion acquisition of Aetna and dismantle the vertically integrated healthcare conglomerate it created in 2018, according to CNBC.
Analysts cite legislative pressure on PBMs
Mizuho Securities analyst Ann Hynes said she suspects the decision is largely driven by legislative and legal pressure on vertically integrated healthcare companies, particularly PBMs, and by a wish to unlock the value of the health insurance business. Leerink Partners analyst Michael Cherny called the split a complete shock, but said the rationale could be avoiding state legislative scrutiny of the company's vertical integration.
Pressure on PBMs is building. Congress enacted PBM reforms in February, and states have increasingly moved to restrict PBMs' ownership of pharmacies.
Quarterly results beat estimates
CVS reported third-quarter revenue of $108.4 billion, up about 5% from $102.9 billion a year earlier and above the FactSet estimate of $104.8 billion. Adjusted earnings per share came in at $2.09 against a FactSet estimate of $1.65.
Same-store sales, however, dropped 0.6%, against a FactSet consensus of a 1.4% decline. CVS shares have gained 14.1% so far this year, while the State Street Health Care Select Sector SPDR ETF is up 18.3%.
Sources: CNBC, MarketWatch
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