CVS is considering a break up. Here’s why that could be risky

It’s time for a wellness check at CVS Health.

Shares of the company are down more than 20% this year as it grapples with higher-than-expected medical costs in its insurance unit and pharmacy reimbursement pressure, among other issues.

As it seeks to claw back faith with Wall Street, the company is considering breaking itself up.

CVS has engaged advisors in a strategic review of its business, CNBC reported Monday. One option being weighed is splitting up its retail pharmacy and insurance units. It would be a stunning reversal for the company, which has spent tens of billions of dollars on acquisitions over the last two decades to turn itself into a one-stop health destination for patients.

Some analysts contend that a breakup of CVS would be challenging and unlikely. 

CVS risks losing customers and revenue if it splits up its vertically integrated business segments, which includes health insurer Aetna and the major pharmacy benefits manager Caremark. That could translate to more lost profits for a health-care giant that has slashed its full-year 2024 earnings guidance for three consecutive quarters. 

“There really is no perfect option for a split,” said eMarketer senior analyst Rajiv Leventhal, who believes a breakup is still a possibility. “If that does happen, one side of the split becomes really successful and prosperous, and the other would significantly struggle.”

Notably, CVS executives on Monday met with major shareholder Glenview Capital to discuss how to fix the flailing business and recover its stock, CNBC previously reported. But Glenview on Tuesday denied rumors that it is pushing to break up the company.

If CVS stays intact, CEO Karen Lynch and the rest of the management team will have to execute major changes to address what industry experts say are glaring issues battering its bottom line and stock price.

The company has already undertaken a $2 billion cost-cutting plan, announced in August, to help shore up profits. CVS on Monday said that plan involves laying off nearly 3,000 employees.

Some analysts said the health-care giant must prioritize recovering the margins in its insurance business, which they believe is the main issue weighing on its stock price and financial guidance for the year. That pressure drove a leadership change earlier this year, with Lynch assuming direct oversight of the company’s insurance unit in August, displacing then-President Brian Kane.

CVS’ management team and board of directors “are continually exploring ways to create shareholder value,” a company spokesperson told CNBC, declining to comment on the rumors of a breakup. 

“We remain focused on driving performance and delivering high quality healthcare products and services enabled by our unmatched scale and integrated model,” the spokesperson said in a statement. 

Investors may get more clarity on the path forward for the…