CVS Health (CVS) is reportedly exploring the separation of its retail and insurance businesses, according to an exclusive Reuters report. This news of a potential strategic shift comes as the healthcare company faces increasing pressure from investors to reverse its struggling fortunes. The report states that the company has been discussing with financial advisers how such a split might unfold.
CVS Is Exploring Different Paths Going Ahead
Apparently, CVS is considering different paths for the future, including a detailed analysis of separating its pharmacy chain from its insurance business. However, the report cautions that the plans are not finalized, meaning CVS may ultimately choose a different strategy.
Moreover, CVS is deliberating the future of its pharmacy benefits manager (PBM) unit, which oversees drug benefits for health plans. If a business split occurs, it remains unclear whether the PBM unit would fall under the retail business or the insurance business.
Separation of CVS Businesses Could Create Two Companies
If CVS moves forward with the separation, it could result in the creation of two publicly traded companies. This would effectively unravel the company’s $70 billion acquisition of health insurer Aetna, which CVS completed in 2017.
Why Is CVS Contemplating Separation of Its Businesses?
CVS may be contemplating this move due to rising financial challenges. The company has slashed its full-year guidance for three consecutive quarters. Additionally, profits are being hammered by rising medical costs in its Aetna insurance segment—an issue affecting the broader healthcare industry.
The higher medical costs are linked to an increase in medical procedures by senior citizens that were postponed during the COVID-19 pandemic.
Is CVS a Good Stock to Buy Now?
Analysts remain cautiously optimistic about CVS stock, with a Moderate Buy consensus rating based on seven Buys and seven Holds each. Year-to-date, CVS has declined by more than 15%, and the average CVS price target of $65.08 implies an upside potential of 3.5% from current levels.
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