CVS surgery would provide little if any relief
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Robert Cyran
NEW YORK, Oct 1 (Reuters Breakingviews) -It’s easier to diagnose what ails CVS Health CVS.N than it is to prescribe a cure. Multiple profit warnings from the $78 billion healthcare conglomerate have raised doubts about its strategy. It may now be considering a breakup, but such radical surgery probably would bring little if any relief.
The company’s flagship drugstore chain is one painful problem. Insurance providers have been squeezing pharmacists as online marketplaces such as Amazon.com AMZN.O, mail-order rivals and big retailers including Walmart WMT.N muscle into the business. This competition is a big reason why CVS has generated a dismal 2% total shareholder return, including reinvested dividends, since 2015. It’s only slightly comforting that peer Rite Aid went bankrupt and Walgreen Boots Alliance WBA.O shareholders lost 80% of their investment over the same 10-year span.
CVS avoided an equally disastrous fate by diversifying. It paid $70 billion for insurer Aetna in 2018, following up with the $11 billion acquisition of primary care provider Oak Street and an $8 billion deal for Signify Health, which tends to patients at home. The M&A binge has been of dubious value, however. The combined purchase prices exceed the company’s current market capitalization, and it is now larded with $50 billion of net debt, twice as much as before the acquisitions, at nearly 5 times expected 2025 EBITDA, according to estimates gathered by LSEG.
Moreover, the latest struggles at CVS have centered around insurance. Boss Karen Lynch expanded the Medicare Advantage business, under which private insurers are paid by the U.S. government to manage healthcare benefits for retirees, at just the wrong time. Customers started using it more than expected while federal officials cracked down on reimbursements.
Carving up the company is now under consideration as part of a possible strategic shakeup, according to Reuters, amid pressure from at least one investor, per the Wall Street Journal. Its insurance business and ancillary services would generate $10 billion of adjusted operating profit this year, assuming second-half results match the first half. Rival Cigna CI.N trades at 10 times, implying Aetna-plus would be worth $100 billion.
Double the retail arm’s $2.4 billion of operating profit through June and put it on the same 9 times multiple commanded by Walgreens, and it would be worth nearly $45 billion. Together, the implied uplift for the enterprise would only be about 10%, including debt, which hardly justifies the risky operation. A better prescription for Lynch would be to stop doing overpriced deals and instead find ways to nurse the wounded units back to health.
Follow @rob_cyran on X
CONTEXT NEWS
CVS Health is exploring strategic options including breaking up the company by separating its pharmacy and insurance units, Reuters reported on Sept. 30, citing unnamed sources.
Hedge fund Glenview Capital has built a 1% stake in the company, according to an article published on the same day by the Wall Street Journal.
CVS shares have gone nowhere for a decade https://reut.rs/3Y54DNq
Editing by Jeffrey Goldfarb and Pranav Kiran
Mga Kaugnay na Asset
Pinakabagong Balita
Disclaimer: Ang mga kabilang sa XM Group ay nagbibigay lang ng serbisyo sa pagpapatupad at pag-access sa aming Online Trading Facility, kung saan pinapahintulutan nito ang pagtingin at/o paggamit sa nilalaman na makikita sa website o sa pamamagitan nito, at walang layuning palitan o palawigin ito, at hindi din ito papalitan o papalawigin. Ang naturang pag-access at paggamit ay palaging alinsunod sa: (i) Mga Tuntunin at Kundisyon; (ii) Mga Babala sa Risk; at (iii) Kabuuang Disclaimer. Kaya naman ang naturang nilalaman ay ituturing na pangkalahatang impormasyon lamang. Mangyaring isaalang-alang na ang mga nilalaman ng aming Online Trading Facility ay hindi paglikom, o alok, para magsagawa ng anumang transaksyon sa mga pinansyal na market. Ang pag-trade sa alinmang pinansyal na market ay nagtataglay ng mataas na lebel ng risk sa iyong kapital.
Lahat ng materyales na nakalathala sa aming Online Trading Facility ay nakalaan para sa layuning edukasyonal/pang-impormasyon lamang at hindi naglalaman – at hindi dapat ituring bilang naglalaman – ng payo at rekomendasyon na pangpinansyal, tungkol sa buwis sa pag-i-invest, o pang-trade, o tala ng aming presyo sa pag-trade, o alok para sa, o paglikom ng, transaksyon sa alinmang pinansyal na instrument o hindi ginustong pinansyal na promosyon.
Sa anumang nilalaman na galing sa ikatlong partido, pati na ang mga nilalaman na inihanda ng XM, ang mga naturang opinyon, balita, pananaliksik, pag-analisa, presyo, ibang impormasyon o link sa ibang mga site na makikita sa website na ito ay ibibigay tulad ng nandoon, bilang pangkalahatang komentaryo sa market at hindi ito nagtataglay ng payo sa pag-i-invest. Kung ang alinmang nilalaman nito ay itinuring bilang pananaliksik sa pag-i-invest, kailangan mong isaalang-alang at tanggapin na hindi ito inilaan at inihanda alinsunod sa mga legal na pangangailangan na idinisenyo para maisulong ang pagsasarili ng pananaliksik sa pag-i-invest, at dahil dito ituturing ito na komunikasyon sa marketing sa ilalim ng mga kaugnay na batas at regulasyon. Mangyaring siguruhin na nabasa at naintindihan mo ang aming Notipikasyon sa Hindi Independyenteng Pananaliksik sa Pag-i-invest at Babala sa Risk na may kinalaman sa impormasyong nakalagay sa itaas, na maa-access dito.
