CVS Health Corp Shares Rise

Shares of CVS Health Corp (NYSE:CVS) are trading higher on Wednesday after Glenview Capital, an activist investor with a $700 million stake in the company, denied rumors of a potential break-up of the healthcare giant.

Glenview’s Statement

In a statement released late last night, Glenview admitted its belief that “the Company is operating well below its potential,” emphasizing that it engages with CVS’s management “in good faith and constructive conversations.” Glenview is “offering suggestions to enhance the governance, culture, efficiency, sustainability, and growth.”

Addressing media speculations, they clarified, “This is false,” insisting they are not advocating for a company split. “Our goals are those shared by all stakeholders – to work together to strengthen CVS’s culture and operating performance to enhance value for customers, associates, and shareholders alike.”

Strategic Changes

Despite Glenview’s diplomatic tone, the letter reveals their intention to pursue a change of course at CVS, especially after the company has decreased its FY2024 guidance multiple times since the year’s start.

According to a report from the Wall Street Journal, Glenview’s stake is now approximately 11 million shares, up from 7.5 million shares reported just a month ago. The position comprises nearly a third of Glenview’s $2.5 billion portfolio.

Additionally, the WSJ noted that at least one other hedge fund has also taken a significant position in CVS, potentially adding pressure for change within the company.

Analyst Insights

Mizuho Securities analysts commented on CVS’s situation, citing the low likelihood of CVS separating its retail pharmacy and insurance segments due to their combined synergies. They acknowledged the beneficial nature of Caremark’s ownership for both retail and health insurance avenues.

While Mizuho avoided discussing specifics about activist involvement or strategic changes, they estimated the Aetna segment’s earnings power at $2.50-$3.25 if CVS successfully improves margin recovery in the MA segment.

Overall, they concluded that “there are more reasons to keep Aetna than separate the company” and maintained that CVS will remain a consolidated enterprise. Mizuho reiterated an Outperform rating on CVS shares with a $66 price target.

Shares of CVS are gaining over 2% on Wednesday despite being down 23% YTD.