Shares of CVS Health Corp (NYSE:CVS) are trading higher on Wednesday after Glenview Capital, an activist investor with a $700 million stake in the company, denied rumors that it is pushing to break up the healthcare giant.
In a statement released late last night, Glenview admitted its belief that “the Company is operating well below its potential,” and noted that it engages with CVS’ management “in good faith and constructive conversations” and is “offering suggestions to enhance the governance, culture, efficiency, sustainability and growth.”
“This is false,” the statement continued, addressing recent media speculations that Glenview is pushing for a break-up of the company.
“Our goals are those shared by all stakeholders – to work together to strengthen CVS's culture and operating performance to enhance value for customers, associates and shareholders alike.”
The letter, despite its diplomatic tone, has made one thing clear: Glenview is pursuing a change of course at CVS, which has lowered its FY2024 guidance several times since the start of the year.
The original Monday report by the Wall Street Journal claimed Glenview now has $700 million stake in the company—implying a nearly 11M share stake, up sharply from 7.5M shares reported just over a month ago, as of August 30th, 2024.
The position also reportedly represents nearly a third of Glenview’s $2.5 billion portfolio, further underscoring the activist’s commitment.
The WSJ report added that “at least one other hedge fund has also established a significant position in CVS,” noting “they, too, may move to pressure the company for change.”
Analysts at Mizuho Securities weighed in on the speculations surrounding CVS and believe “the likelihood of CVS separating the retail pharmacy and insurance segments is low given the embedded synergies of the combined entities, and the fact that ownership of Caremark benefits both the retail and health insurance businesses.”
They refrained from comments on any potential activist involvement or what the company’s strategy change may look like, but estimated “the Aetna segment has roughly $2.50-$3.25 of embedded earnings power if CVS can execute on margin recovery in the MA segment.”
Overall, they concluded “there are more reasons to keep Aetna than separate the company” and believe CVS “will stay a consolidated enterprise.”
Mizuho reiterated an Outperform rating on the shares with a $66 Price Target.
Shares of CVS are gaining over 2% on Wednesday and are down 23% YTD.