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Kiplinger
Kiplinger
Business
Joey Solitro

Is CVS Health About to Break Up? Here's What We Know

A CVS Health storefront.

CVS Health (CVS) stock is lower in Tuesday's session on news the pharmacy chain's board of directors is conducting a strategic review of its business, according to media reports.

CVS has hired bankers to assist in exploring options, including the potential separation of its retail and insurance units into two publicly traded companies, people familiar with the matter told Reuters. The discussions are still in the early stages and no plans have been finalized.

A CVS spokesperson declined to comment on the report, but did tell Reuters the following:

"CVS's management team and Board of Directors are continually exploring ways to create shareholder value," the spokesperson said. "We remain focused on driving performance and delivering high-quality healthcare products and services enabled by our unmatched scale and integrated model."

The report comes as CVS faces pressure from activist investor Glenview Capital. The hedge fund recently took a sizable stake in the healthcare stock and met with CVS executives to propose changes to improve its operations, according to The Wall Street Journal.

Is CVS Health stock a buy, sell or hold?

CVS Health's troubles haven't been solely on the fundamental side. Indeed, shares have underperformed on the price charts, too, down 18% on a total return basis (price change plus dividends) so far this year vs the S&P 500's 22% gain. Still, Wall Street remains bullish on the large-cap stock

According to S&P Global Market Intelligence, the consensus analyst target price for CVS stock is $67.14, representing implied upside of more than 8% to current levels. Additionally, the consensus recommendation is Buy.

Financial services firm BofA Securities is one of those with a Buy rating on CVS stock, along with a $77 price target.

"CVS' reported decision to pursue a strategic review would not be particularly surprising given the company's recent execution issues," says BofA Securities analyst Allen Lutz, who adds that he has mixed feelings about a potential breakup. 

While it could reasonable in a normal environment "to assume that the health plan Aetna could obtain a higher earnings multiple as a standalone business," the insurance provider's underperformance in 2024 "is the main driver of CVS' weak share price, and it is unclear how much investors would reward that business as a standalone entity, especially on current year or next year's earnings."

Lutz believes a stabilization in Aetna's earnings could "generate substantial shareholder value" and "significant upside potential." 

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