CVS Health announced on Wednesday that it plans to break into two publicly traded companies by the first half of 2028, separating its retail pharmacy operation of roughly 9,000 stores from its Aetna insurance business and its Caremark pharmacy benefit manager.
The decision comes more than two years after CVS weighed a breakup in 2024 and walked away, at a time when analysts doubted the retail pharmacy could survive independently. "Back then, the idea of retail standing alone was unthinkable," Brian Tanquilut, senior equity research analyst at Jefferies, told CNBC.
Executives and analysts say the economics have since shifted. CEO David Joyner told CNBC's "Squawk on the Street" that in 2024 the company was "in a turnaround" and lacked the flexibility, cash and business performance to execute a split. CVS has now beaten Wall Street earnings estimates for eight consecutive quarters and has raised its guidance several times over the past two years.
Since taking over in 2024, Joyner has pushed a turnaround plan involving $2 billion in cost cuts, store closures, leadership changes and efforts to rein in Medicare Advantage costs. The company expects to generate at least $15.5 billion in operating cash flow in 2026, a roughly 70% increase from $9.1 billion in 2024, and says it reached its leverage target ahead of schedule. Investors reacted coolly to Wednesday's news, sending shares down about 12%.
The retail pharmacy has grown more consistently profitable, aided by the widespread retrenchment and store closures of Walgreens, Rite Aid and other rivals, which created room for CVS to gain market share. Its CostVantage program, a more transparent, cost-based reimbursement model, has also helped steady profits, some analysts said. "For us, it's showing the stability of the pharmacy," said Michael Cherny, senior research analyst at Leerink Partners. The unit remains a relatively low-margin operation, with adjusted operating margins of roughly 4% to 5%, but analysts say it may now be stable enough to operate independently.
The remaining healthcare company would keep Aetna and Caremark together, alongside CVS's specialty pharmacy, its Oak Street Health primary care clinics and its home-visit provider Signify Health. Aetna has improved its handling of medical costs by exiting unprofitable markets, expanding value-based care models and tightening utilization management, while RBC Capital Markets analyst Ben Hendrix wrote that the low valuation investors assign to retail pharmacy has weighed on CVS's overall value and obscured the strength of businesses like Aetna and Caremark.
The breakup also arrives as Caremark faces mounting scrutiny of pharmacy benefit managers. Republicans in Tennessee and Arkansas have passed laws that would ban any one company from owning both a pharmacy and a PBM, though the Arkansas measure has been held up in court. Joyner told the Wall Street Journal the company was not splitting because of regulatory issues, and CVS says the separation followed a strategic review intended to give each business greater focus and flexibility.
The plan marks a sharp departure from the integrated strategy CVS spent years building after paying roughly $70 billion to acquire Aetna in 2018, a model it was still promoting at its investor day last year. A central question is how much of the commercial relationship between the businesses can survive. Caremark currently steers members toward CVS locations through preferred pharmacy arrangements such as Maintenance Choice, and Hendrix raised questions about how a split could affect Aetna's Medicare Advantage quality ratings, since retail pharmacists have played a role in engaging members.
Joyner told analysts the synergy between the two businesses would be "preserved in commercial agreements between the two organizations," which CVS will work on over the next 15 to 18 months. Cherny wrote in a note that the issue is not whether the companies can keep working together, but whether future contracts "preserve the SAME competitive advantages and flexibility as today under common ownership." Both sides face challenges of their own, from online pharmacy competition and potential changes to the federal 340B drug discount program in 2027 to Aetna's multiyear effort to rebuild its margins, and the split will test whether each can thrive on its own.
