CVS stock in focus as the health conglomerate plans to split in two by 2028

The breakup plan

The separation of CVS is expected to be completed in the first half of 2028, which gives investors and customers of the healthcare conglomerate a timeline of more than a year ^[1]. The Financial Times first reported the breakup plans on Tuesday ^[2].

Joyner said the company plans to create two focused companies to improve consumer engagement, affordability, and care coordination ^[3]. The decision follows a comprehensive strategic review by the board of directors ^[3].

How CVS got here

CVS built the healthcare conglomerate through a series of acquisitions ^[1]. At the end of 2024, its market value fell to its lowest level in over a decade, though it has since rebounded ^[2].

Many investors see CVS's pharmacy benefit manager as the shining jewel of the portfolio, while prospects have dimmed for the pharmacy business ^[2]. CVS drugstores face pressure from a shift toward prescription delivery that has reduced store visits ^[1].

Why analysts call the timing favorable

Analysts said the timing was favorable because CVS's pharmacy and consumer wellness business had returned to growth after years of underperformance ^[1]. Morningstar analyst Julie Utterback said it is better to move from a place of strength than from weakness ^[1].

Analyst Michael Cherny said the retail pharmacy business has been performing well, winning market share from competitors ^[3]. Retail pharmacy margins have stabilized thanks to CostVantage, a pharmacy reimbursement model CVS introduced last year ^[3].

Regulatory pressure on the model

A separation could help address regulatory scrutiny of CVS's vertically integrated model, some analysts noted ^[1]. Cherny suggested the split could help CVS avoid relentless state legislative scrutiny over its level of vertical integration ^[3].

Arkansas and Tennessee have each passed laws aiming to stop conglomerates from managing prescription benefits and running retail and mail-order pharmacies ^[2]. Lawmakers from both parties in Washington and other states have proposed similar legislation, which the conglomerates have fiercely opposed ^[2].

Congress enacted PBM reforms in February, including changes to how PBMs are compensated under Medicare Part D ^[3].

The concerns behind consolidation

Years of industry consolidation have raised concerns that companies controlling multiple parts of the healthcare supply chain could face conflicts of interest, limit competition and contribute to rising healthcare costs ^[1]. Critics say the conglomerates have used conflicts to profit from their web of businesses, driving up medical costs and stifling competition ^[2].

PBMs have been criticized for opaque pricing, growing market power and potential conflicts of interest when owned by companies that also operate insurers and pharmacies ^[3].

The wider industry

Health insurers have faced elevated medical costs, prompting them to raise premiums, trim benefits and exit less profitable plans ^[1]. The cautious outlook reflects continued elevated medical cost trends and potential macro headwinds ^[1].

Rival Walgreens sold its Boots pharmacy business and was acquired by Sycamore Partners last year ^[1].