CVS Health to split into two companies by 2028

CVS Health announced on Wednesday that it will divide into two independent public companies by the first half of 2028. The split separates the retail pharmacy chain, which operates approximately 9,000 stores, from the Aetna insurance business and the Caremark pharmacy benefit manager.

This decision reverses a 2024 move where the company abandoned a similar plan due to financial instability. CEO David Joyner told CNBC’s Squawk on the Street that in 2024, the company lacked the necessary cash flow and business performance to execute a separation. Since taking the helm in 2024, Joyner has driven a turnaround that includes $2 billion in cost cuts and store closures. The company has now exceeded Wall Street earnings estimates for eight consecutive quarters.

Investors responded negatively to the news, with CVS shares dropping approximately 12% on Wednesday. Despite the stock price decline, executives argue the company’s financial health has improved. CVS projects operating cash flow of at least $15.5 billion in 2026, a 70% increase from the $9.1 billion generated in 2024.

The retail division has become more profitable as competitors like Walgreens and Rite Aid closed locations. Michael Cherny, a senior research analyst at Leerink Partners, noted that the pharmacy unit is now stable enough to operate alone, despite maintaining low adjusted operating margins of 4% to 5%. The remaining healthcare entity will retain Aetna, Caremark, and CVS’s specialty and primary care clinics.

The separation occurs as state legislatures scrutinize pharmacy benefit managers. Tennessee and Arkansas have passed laws restricting companies from owning both pharmacies and PBMs. Joyner told The Wall Street Journal that regulatory pressure was not the primary driver for the split. Instead, the move follows a strategic review aimed at providing each business with greater operational focus.

A key challenge for the split is maintaining the commercial relationship between the two entities. Caremark currently directs patients to CVS stores through preferred pharmacy programs. Ben Hendrix, an analyst at RBC Capital Markets, questioned how the division might affect Aetna’s Medicare Advantage quality ratings. Joyner stated that the two companies will negotiate commercial agreements over the next 15 to 18 months to preserve these synergies.