CVS Rises as Activist Investor Refutes Pressure to Separate the Company

Shares of CVS Health Corp are experiencing an uptick on Wednesday after Glenview Capital, an activist investor with a significant $700 million stake in the company, dismissed rumors about a potential breakup of the healthcare giant.

In a statement released late last night, Glenview expressed its belief that “the Company is operating well below its potential.” The firm clarified that it is engaging with CVS management in “good faith and constructive conversations” and is providing suggestions aimed at enhancing governance, culture, efficiency, sustainability, and growth.

The statement directly addressed recent media speculation, asserting, “This is false,” regarding claims of Glenview’s intention to push for a breakup of the company. Glenview emphasized its commitment to shared goals with all stakeholders, focusing on strengthening CVS’s culture and operational performance to increase value for customers, employees, and shareholders alike.

While the tone of the letter was diplomatic, it highlighted Glenview’s pursuit of a strategic change at CVS, which has lowered its fiscal year 2024 guidance multiple times since the beginning of the year.

A Monday report from a major financial publication revealed that Glenview’s stake in CVS has grown to approximately 11 million shares, a significant increase from the 7.5 million shares reported just over a month ago. This position represents nearly a third of Glenview’s overall $2.5 billion portfolio, signaling the activist’s commitment to the company.

The report also mentioned that at least one other hedge fund has established a substantial position in CVS, indicating that they might also seek to influence the company’s direction.

Analysts at Mizuho Securities weighed in on the ongoing speculation surrounding CVS, suggesting that the chances of separating the retail pharmacy and insurance segments are low. They noted that the synergies between the combined entities are significant and that ownership of Caremark benefits both the retail and health insurance sectors.

While Mizuho analysts refrained from commenting on the potential impact of activist involvement or the specifics of any strategic changes, they estimated that the Aetna segment has around $2.50 to $3.25 of embedded earnings power if CVS successfully executes margin recovery in its Medicare Advantage segment.

Ultimately, they concluded that there are more reasons to keep Aetna within CVS rather than separating the company and believe CVS will continue operating as a consolidated enterprise. Mizuho reiterated an Outperform rating on CVS shares, setting a price target of $66.

On Wednesday, CVS shares increased by over 2%, although they remain down 23% year-to-date.