CVS Considers Breaking Up: Because Who Needs Stability When Your Stock’s Down -22% YTD...

As the crisp autumn air ushers in the suspenseful October markets, CVS Health is conjuring up a corporate thriller of its own. The healthcare giant is reportedly mulling over the idea of breaking itself up—because, you know, why not throw a little chaos into the mix when your stock has been ghosting investors, down 22% year-to-date? 

(Source: Healthcare Finance) 

In short, CVS, the same company that sells your Halloween candy and flu shots, is considering a split that could reshape the healthcare landscape. And if you’re wondering why, let’s just say it’s dealing with a little activist pressure and a severely depressed stock price.

According to reports, CVS’s board has been burning the midnight oil with advisors, brainstorming all kinds of scenarios for how this split could go down. But let’s be clear: nothing’s official yet. They’re still in the “What if we did this crazy thing?” phase. However, the fact that the breakup talk is even on the table definitely has some investors frothing at the mouth.

(Source; Giphy) 

The mere rumor of a split sent CVS stock soaring—well, kind of. It popped up 6.10% at its peak this week (currently chilling around 2.84%). Not exactly a moonshot, but hey, when your stock’s been face-planting harder than Biden on a staircase all year, you’ll take what you can get. Especially when you factor in that the S&P 500 has gained almost 21% during the same timeframe. 

(Source: Nasdaq) 

So, what triggered CVS’s current horror show? Well it all has to do with their Medicare business—aka the gift that just keeps on giving. Turns out their $70 billion Aetna acquisition might’ve been a little too good at signing up seniors. Hundreds of thousands of new members flocked to CVS, bringing with them a bunch of higher-than-expected medical costs. Not to mention the fact that federal regulatory policies have been squeezing Medicare insurers like a boa constrictor.

(Source: AP) 

As if that wasn’t enough, CEO Karen Lynch—who’s now personally running the insurance unit, BTW—had to sit down with Glenview Capital (a major shareholder) and explain how she’s going to clean up this mess. Spoiler alert: It’s not a quick fix. 

(Source: Wall Street Journal) 

On the bright side, CVS’ official mouthpiece, David Whitrap, told CNBC that, “CVS Health’s management team and Board of Directors are continually exploring ways to create shareholder value,” Translation: They are trying really hard at being laser-focused on delivering high-quality healthcare products and services, blah blah blah. It’s the same ol’ corporate talk that tries to put out the flames, without actually putting out the flames. 

Now with that said, here’s where things get really interesting. CVS has come a long way from being your friendly neighborhood drugstore. Over the years, it’s transformed into a healthcare juggernaut, thanks to a major shopping spree of acquisitions like Aetna. But the initial idea to create a one-stop shop where you could fill prescriptions, get a check-up, and manage your insurance—all under one roof only sounded great on paper. Yet, when it came to reality… well, it wasn’t so simple. 

(Source: Giphy) 

Lately, CVS has been downplaying that whole “vertical integration” dream, instead funneling cash into Oak Street Health, a clinic operator they dropped $10.6 billion on as the primary-care vehicle. But the shift in strategy, along with Medicare troubles, has led to multiple earnings forecast reductions since late last year. To make matters worse, CVS has promised $2 billion in cost cuts and just announced layoffs affecting about 2,900 people.

(Source: Stat) 

Meaning, if CVS does decide to go the breakup route, it would likely undo the Aetna acquisition, potentially resulting in two publicly traded companies. According to inside sources, there's ongoing debate about whether the pharmacy benefits manager (PBM) should be paired with the retail unit or the insurance side in the event of a split. Decisions, decisions.

Not everyone’s convinced this breakup is the right move, though. Julie Utterback from Morningstar threw some serious shade, saying, “While we realize the medical insurance and PBM operations are facing problems currently, we agree with management that the long-term weak link at CVS will likely be its namesake retail pharmacy stores.” In other words, unless CVS can figure out how to expand healthcare services in its retail stores, a strategic change may be necessary.

(Source: Wall Street Journal) 

In the end, with so much uncertainty in the air, the healthcare industry is watching CVS’s next steps very closely. For now though, as the calendar flips to October and skeletons dangle from your neighbors trees, CVS Health is staring down it's own blockbuster horror movie. Will they split? Will they stay together? Who knows. But one thing’s for sure: the transformation of this healthcare giant won’t be boring to watch.

In the meantime, keep an eye on CVS going forward and as always stay safe and stay frosty, friends! Until next time… 

P.S. 54% short interest, and a 648.5% borrow fee?! Once this catalyst hits this little known stock… we could be going to the moon! Of course, we’ll be dropping the ticker symbol sometime soon… so click here ASAP to upgrade to premium to ensure you don’t miss out on this seismic opportunity! 

Stock.News does not hold positions in companies mentioned in the article.