CVS Health in Focus as Activist Investor Prepares for High-Level Talks

CVS Health Corp CVS is set to face renewed pressure as hedge fund Glenview Capital Management, led by founder Larry Robbins, plans to meet top executives, including CEO Karen Lynch, to discuss operational improvements.

The meeting with Glenview comes as part of Robbins’ broader strategy to push for change, the Wall Street Journal reports.

Also Read: Pharmacy Chains Like CVS Health, Walgreens Boots Alliance Confront Shifting Consumer Habits And Profit Pressures.

Robbins, who has built a substantial $700 million position in CVS, sees potential for the company to revitalize its struggling business without resorting to a breakup.

Robbins is expected to propose cost-cutting and restructuring strategies but will not push for a breakup of CVS. Another hedge fund has also built a notable position in the company, hinting at further pressure from investors.

CVS, one of the largest healthcare companies in the U.S., has seen its stock tumble 24% year-to-date amid multiple earnings downgrades.

In the second quarter, the pharmacy chain reported adjusted EPS of $1.83 decreased from $2.21 in the prior year, beating the consensus of $1.73. The fall is primarily due to a decline in the Health Care Benefits segment’s operating results, which reflect continued utilization pressure and the unfavorable impact of the company’s Medicare Advantage star ratings for the 2024 payment year within the Medicare product line.

CVS Health revised its adjusted EPS guidance to $6.40-$6.65 from at least $7.00 versus the consensus of $6.98, reflecting continued pressure in the Health Care Benefits segment.

The Wall Street report adds that CVS had heavily invested in attracting seniors to its Aetna Medicare plans, but the move backfired, squeezing margins. The company is now revising its Medicare approach for 2025 to address these issues.

CVS Health decided to make leadership changes based on the current performance and outlook for the Health Care Benefits segment. 

Brian Kane quit, and Karen Lynch, the CEO, assumed direct leadership of the Health Care Benefits segment.

Karen and Tom Cowhey, CVS Health’s CFO, oversee the business’s day-to-day management.

Recently, the Federal Trade Commission (FTC) filed a formal complaint against three major pharmacy benefit managers (PBMs)—CVS Health’s Caremark, Cigna Corp’s CI Express Scripts, and UnitedHealth Group Inc’s UNH Optum—for allegedly engaging in unfair and anti-competitive practices that have inflated the list price of insulin medications.

The FTC has also highlighted significant concerns regarding consolidating pharmacies and health insurance companies, focusing on the influence of a few dominant PBMs on prescription drug prices.

Price Action: CVS stock is up 3.27% at $63.39 during the premarket session at last check on Monday.

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