Why CVS Health plans to split pharmacy and Aetna, Caremark

CVS Health plans to break itself up — and this time, the bet looks a lot more viable.

The healthcare conglomerate on Wednesday announced plans to split into two publicly traded companies by the first half of 2028. CVS would separate its pharmacy business – including roughly 9,000 retail locations – from its major insurance business and pharmacy benefit manager, Caremark. 

The move comes more than two years after CVS considered a breakup but ultimately walked away from the idea. At the time, analysts questioned whether the retail pharmacy business could survive on its own.

“Back then, the idea of retail standing alone was unthinkable,” Brian Tanquilut, senior equity research analyst at Jefferies, told CNBC.

But the economics of the businesses have changed: CVS’s retail pharmacy business has become more consistently profitable, while its insurer, Aetna, has improved its performance despite persistently high medical costs in Medicare Advantage plans. That could make it easier for the company to separate the units — and for investors to recognize the value of each on its own, rather than valuing them together as one sprawling healthcare conglomerate.

“For us, it’s showing the stability of the pharmacy,” Michael Cherny, senior research analyst at Leerink Partners, said in an interview. “This business is a much different business from the one that’s been considered three years ago, five years ago, 10 years ago, where there had been a litany of headwinds that the pharmacy just couldn’t overcome.”

CVS CEO David Joyner told CNBC’s “Squawk on the Street” on Wednesday that back in 2024, the company was “in a turnaround” without the flexibility, cash or business performance to execute a split. Now, CVS has posted eight consecutive quarters of beating Wall Street earnings estimates and has raised its guidance several times over the last two years, thanks to improvement across its PBM, pharmacy and insurer.

Since taking the helm in 2024, Joyner has pursued an aggressive turnaround plan that involves $2 billion in cost cuts, store closures, leadership shakeups and efforts to rein in Medicare Advantage costs.

The company also now 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 has reached its leverage target ahead of schedule.

“What’s changed in two years is the fact that we now can look at this business and the assets that are assembled and really determine, without any distress or without anything that we have to do, what is the right strategic decision to make,” Joyner told analysts on a call Wednesday, adding that the decision comes “out of strength.”

While investors have largely cheered CVS’s progress in recent years, Wall Street appeared more pessimistic about Wednesday’s announcement, as the company’s shares dropped about 12%.