Nearly seven years after CVS Health bought major managed care player Aetna for $69 billion, envisioning a new model delivering health care services out of its massive store infrastructure, investors and the company's own board have run out of patience with CVS stock, which remains underwater.
On Monday, The Wall Street Journal reported that hedge fund Glenview Capital Management, which owns about 1% of CVS stock met with the company to discuss ways to improve operations. Now the Journal and other outlets are reporting that the CVS board of directors has ordered up a strategic review, in which a breakup of the company is among options on the table.
CVS Board Move Shows 'Desperation'
In a Tuesday note with the title "The Smell of Desperation," Deutsche Bank analyst George Hill wrote that the board's prominent role is "making us question whether or not the process includes the management team."
Hill added: "We believe CVS's more-aggressive evaluation of strategic alternatives is overdue, but the company's value has diminished because of poor execution that (sic) we are not sure how much value can be salvaged in the short to medium term."
Hill has a hold rating and 63 price target, which is basically where CVS shares closed on Monday after a two-day jump on reports that change may be afoot.
CVS Vs. Walgreens
CVS shares are down more than 40% since 2015. However, Walgreens Boots Alliance, which got kicked out of the Dow Jones Industrial Average earlier this year, has shed close to 90% of its value since then. The drugstore business is a tough one, and CVS came up with a strategy that at least stemmed the bleeding, building on its earlier acquisition of prescription benefit manager Caremark.
More recently, CVS bought Oak Street Health, an operator of health care clinics geared to Medicare patients, for $10.6 billion. Yet that seemed to be a step back from the idea of turning stores into clinics.
CVS has been gaining market share, filling 27% of national retail prescriptions in the latest quarter. Yet having a wounded rival like Walgreens could lead to intense price competition.
However, the source of the recent string of earnings disappointments has been Medicare, both Medicare Advantage and prescription drug coverage. CVS Health managed to boost its enrollment by sweetening its coverage terms, but got hit by an unanticipated surge in utilization. Now it's making its offerings more conservative in an effort to turn the tide in 2025.
CVS Stock
CVS rose 1.4% ahead of Tuesday's open, but turned lower, falling 2.2% to 61.40. The decline came as CVS released a statement announcing around 2,900 layoffs, primarily corporate roles, as part of a broader cost-cutting effort. Shares had rallied 2.4% on Monday.
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