CVS Rises After Report of Meeting With Investor Glenview

(Bloomberg) — CVS Health Corp. shares jumped after a report that executives will meet Monday with investor Glenview Capital Management on how it can improve operations amid a long drop in share value. 
Glenview founder Larry Robbins has amassed a large position in CVS, the Wall Street Journal reported Sunday, citing unidentified people close to the matter. CVS represents about $700 million of Robbins’ $2.5 billion fund, one of the people told the Journal. 
CVS “maintains a regular dialogue with the investment community as part of our robust shareholder and analyst engagement program,” the company said, declining to comment further. 
The diversified health-care company has been facing stiff challenges in its drugstore chain as well in as the Aetna health insurance arm, with the shares losing 45% of their value since their most recent peak in February 2022. In August, CVS cut its 2024 earnings forecast for the third straight quarter amid rising costs of patient care for the insurance unit. 
CVS is likely to “sharpen its focus on near-term wins and to be more decisive on communicating its strategy with Robbins now publicly involved,” Bloomberg Intelligence analyst Jonathan Palmer said in an email. “The challenge is these are highly regulated businesses where changes happen relatively slowly due to contracting. There isn’t a quick fix that will make CVS more competitive overnight.”
The shares gained 2.5% as of 2:47 p.m. in New York. They had lost 22% this year through Friday’s close. 
Rising medical costs have been affecting companies throughout the insurance industry, including Humana Inc. and UnitedHealth Group Inc. CVS started a multiyear effort to cut $2 billion in expenses as health-care expenses soar in the Aetna unit, which generates about a third of its revenue. The unit also took a recent hit when Medicare, the US health program for the elderly, lowered quality ratings for one of its national health plans, reducing reimbursement levels. 
Brian Kane, who had headed the insurance unit, departed in August after less than a year in the role. Chief Executive Officer Karen Lynch and Chief Financial Officer Tom Cowhey have taken over his duties while CVS searches for a successor. Lynch has been looking to diversify into businesses such as the Oak Street chain of clinics for Medicare patients.
Meanwhile, it’s become harder to turn a profit in the front of the store for both CVS and its rival Walgreens Boots Alliance Inc. The overall drugstore business has been suffering amid cost pressures and increased competition from online companies and discount giants. 
CVS has consolidated its business by closing unprofitable stores, which has impacted its store footprint. This means there are fewer CVS stores where shoppers can buy, which pushes traffic back to their competitors who are “aggressively flexing their muscles in the health and wellness space,” said Amar Singh, a senior director at the retail consulting company Kantar Group Ltd.
Monday’s meeting is likely to focus on improving the company’s margins, Singh said. It’s likely to resemble an audit, closely examining priorities and developing a strategy for long-term growth.  
“While they can’t control the macroeconomic environment, you’ve got to think about the business as a whole,” Singh said. “Whether it’s clinics or insurance plans, how will you consolidate it together and build synergy across all those business points? That is the biggest challenge before CVS, because they have strong assets in the organization.” 
–With assistance from John J. Edwards III.
(Adds consultant’s comments in final section)
More stories like this are available on bloomberg.com
©2024 Bloomberg L.P.