$117 billion healthcare giant announces split plan! CVS Health Corporation (CVS.US) plans to spin off its retail pharmacy in 2028, analysts call it "completely unexpected"

CVS Health Corporation (CVS.US) plans to spin off its retail pharmacy business, which would become one of the largest spin-off transactions in the history of the healthcare industry, according to a company spokesperson. The spokesperson confirmed earlier media reports, stating that the pharmacy business will be separated from the Aetna insurance unit and the Caremark pharmacy benefits unit in the first half of 2028. The move marks the end of an era. The company started from a single store in Lowell, Massachusetts, and grew into a healthcare giant with a market value of $117 billion as of Tuesday. Although CVS has closed hundreds of stores in recent years, it still operates nearly 9,000 retail pharmacies. Competitors such as Walgreens and Rite Aid are struggling in the competition. In pre-market trading on Wednesday, CVS shares fell about 2%. Year to date, the stock has risen 15%, outperforming the S&P 500's 11% gain. According to previous reports, the company evaluated strategic options including a split in 2024. Current Chief Executive Officer David Joyner took office two years ago and has made progress in turning the business around after the Aetna unit suffered severe setbacks in recent years. Healthcare conglomerates are facing growing political pressure because their businesses extend into multiple areas, and some state and federal lawmakers have proposed breaking them up. CVS's split would reverse a decade-long trend of industry consolidationpreviously, health insurers continuously merged with pharmacy benefit managers and healthcare service providers. This structure allowed companies to convert some expensessuch as dispensing drugs or providing medical servicesinto revenue for other business segments. Meanwhile, brick-and-mortar pharmacies face long-term challenges from online retailers. Among CVS's major healthcare competitors, it is the only one with a large pharmacy chain network. The pharmacy and consumer wellness segment generated more than $139 billion in revenue last year, accounting for about one-third of CVS's total revenue, although the company reported significant overlap in sales among its business segments. The spokesperson said the company's specialty pharmacy and healthcare services assets Oak Street Health and Signify Health will remain in the same company as Aetna and Caremark, while Minute Clinics will remain in the retail entity. Media reports about a potential split surfaced on Tuesday afternoon local time, surprising some analysts. Leerink Partners analyst Michael Cherny said the split report was "completely unexpected" because the pharmacy and consumer wellness business has performed well recently. "In this context, the outlook for an independent retail pharmacy (which itself still has considerable scale and leverage) may be stronger than ever," Cherny wrote in a research note on Tuesday. CVS also reported earnings on Wednesday. The results showed that CVS's total revenue for the quarter was $10.84 billion, up 5.4% year over year; adjusted earnings per share were $2.09, up 30.6% year over year, significantly above the market consensus estimate of $1.65. Under GAAP, net income attributable to the company for the quarter was $2.172 billion, with GAAP diluted earnings per share of $1.68, compared with a net loss of $3.990 billion and a loss per share of $3.13 in the same period last yearthe turnaround was mainly due to approximately $5.7 billion in goodwill impairment recorded in the same period last year. The core of the performance improvement was the Health Care Benefits segment (including Aetna). Adjusted operating income for the segment in the quarter was $912 million, up 190.4% year over year; the medical benefit ratio (MBR, the ratio of medical claims expenses to premium revenue) was 91.3%, an improvement of 150 basis points from 92.8% in the same period last year, and a cumulative improvement of 220 basis points in the first nine months, mainly driven by improved underlying performance in the Government business. As of the end of the quarter, total medical membership was 26.12 million, basically flat compared with the end of the second quarter and down about 580,000 from the same period last year (mainly due to exiting the individual exchange business in 2026, partially offset by growth in commercial self-insured membership). Other segments were also solid. The Health Services segment (including the pharmacy benefit manager Caremark) had revenue of $53.964 billion (+9.5%) in the quarter and adjusted operating income of $2.106 billion (+2.7%); the Pharmacy & Consumer Wellness segment had revenue of $35.498 billion (-2.0%) and adjusted operating income of $1.635 billion (+10.6%). Pharmacy claims processed in the quarter were 481.7 million (+1.3%), and prescriptions dispensed were 470 million (+1.9%, on a 30-day equivalent basis). Looking ahead, the company raised its full-year profit forecast to at least $8.20 per share, compared with its previous forecast of $7.90 to $8.10 per share. However, the company also cautioned that it remains cautious about the remainder of the year given persistently high cost trends and potential macroeconomic headwinds.