This article is proudly sponsored by Texas Student Media!
Why CVS Should Split Into Two Companies: Unlocking Billions in Shareholder Value
From where I sit, CVS Health (NYSE: CVS) is sitting on a goldmine–but you wouldn’t know it from the stock price. I am talking about a company that owns quality healthcare brands such as Aetna, Caremark, Signify, Oak Street, and one of the largest retail pharmacy footprints in America. And yet, it trades like a commodity drugstore chain with a bloated footprint and continued margin compression.
The solution is simple, bold, and overdue: break it up.
Split CVS into two focused, standalone businesses–1) retail/pharmacy and 2) healthcare:
RetailCo
- CVS Pharmacy (front store + prescription dispensing)
- MinuteClinic (retail walk-in clinics)
- Longs Drugs (CVS’s Hawaii-based retail brand)
- Possibly some in-store diagnostics / OTC testing (e.g., COVID testing)
HealthCo
- Aetna (commercial, Medicare Advantage, Medicaid health plans)
- Caremark (pharmacy benefit management)
- Signify Health (in-home health assessments & care coordination)
- Oak Street Health (value-based primary care clinics)
- Coram (specialty home infusion therapy) – often overlooked, but still a CVS Health asset
- HealthHUBs (hybrid in-store clinical/health services–may straddle RetailCo/HealthCo depending on structure)
- Virtual care/telehealth platforms launched under Aetna or Oak Street branding
Here’s why that move would unlock real shareholder value and bring long-overdue clarity to the business.
1. Eliminate the Conglomerate Discount
Right now, CVS trades at a deep discount to sum-of-the-parts (SOTP) value. Why?
Because investors don’t want to value a margin-thin, store-heavy retailer and a high-growth, capital-light healthcare platform in one bucket–admittedly, it hardly makes any sense.
Break it apart, and each business can be valued on its own fundamentals:
- RetailCo could trade like Walgreens or Rite Aid–but more focused, optimized.
- HealthCo could trade at Optum-style multiples (15–20x earnings) based on its payer-provider flywheel and platform integration.
Split = Multiple Expansion. That alone could re-rate HealthCo shares 30-50%+ conservatively (CVS’s current blended EV/EBITDA multiple (~7–8x), estimated standalone multiples: HealthCo (Aetna, Caremark, Oak Street) → 15–18x + RetailCo → 6–8x (flat, but with better clarity)–For HealthCo alone, this re-rating could exceed 50%. For RetailCo, clarity might not boost the multiple much (after all, it’s still retail, a slowly decaying business–pharmacy is the main anchor for CVS retail), but cost optimization and distinct separation and focus could improve the bottom line.
Notably, hedge fund manager Larry Robbins of Glenview Capital–a longtime healthcare specialist–has recently built a position in CVS and is reportedly in discussions with management. Robbins has a history of pushing for breakups and simplification in underperforming healthcare platforms. While not publicly calling for a split yet, this very thesis is clearly aligned with Glenview’s historical playbook, which is frankly what got me thinking about the state of CVS.
2. Sharpened Strategic Focus = Better Execution
HealthCo
- Can double down on value-based care, care navigation, Medicare Advantage, and digital delivery
- Optimize capital deployment toward clinics, home health, and member growth–not store ops
- Build deeper partnerships with hospitals, employers, and governments
RetailCo
- Can rationalize stores, reoptimize MinuteClinics, and right-size its labor model
- Refocus on front-end cash flow (OTC, private label, basic care services)
- Stop being distracted by health insurance complexity
Two businesses, two strategies, zero distractions. Better capital efficiency across the board.
3. Capital Structure Tailoring = Smarter Financial Engineering
Right now, CVS’s consolidated balance sheet is clunky and mismatched.
With a split:
- HealthCo could be rated investment-grade, optimize debt for growth, and offer a dividend + M&A runway
- RetailCo could be structured lean, potentially private equity-backed, or even REIT-supported to unlock cash from store real estate–If CVS decided to split up its RetailCo and HealthCo businesses, one powerful financial lever would be to monetize its RetailCo-owned store real estate through a REIT structure–either by selling properties to an external Real Estate Investment Trust and leasing them back (a sale-leaseback), or by spinning out its own captive REIT. This strategy would unlock immediate cash, reduce capital tied up in physical assets, and improve return on invested capital (ROIC). RetailCo could then use the proceeds to pay down debt, repurchase shares, or invest in digital transformation–while still operating its stores normally. In today’s market, this kind of asset-light, cash-generating structure is rewarded with stronger valuation multiples and greater financial flexibility.
Tailored financing = higher ROIC + more investor interest.
4. Improved Profitability by Segment
Right now, high-margin, higher-growth businesses are subsidizing weaker retail economics. A breakup enables:
- Transparent segment-level profitability
- More surgical cost-cutting in RetailCo
- Margin accretion in HealthCo through growth and scale
Removing the “everything under one roof” structure reduces bureaucracy, aligns incentives, and gives each CEO room to operate with discipline.
5. Reduce Regulatory Headwinds
CVS’s vertical integration across insurance, pharmacy benefits (Caremark), clinics (Oak Street), and in-home care (Signify) could become a red flag for regulators in 2025 and beyond.
Splitting off HealthCo into its own entity defangs antitrust scrutiny while letting each company pursue growth paths with less regulatory friction.
6. Clearer Profit Margins = Stronger Valuation Math
Right now, CVS’s earnings are blurred by segment complexity. Breaking it up would allow investors and management to see true profitability–line by line.
Here’s how it could look:
| Business Unit | 2024 Est. Revenue | EBITDA Margin | Est. EBITDA | Implied Standalone Valuation (15–18x Health, 6–8x Retail) |
| HealthCo | ~$145B | ~11–12% | ~$16B | $240B–$290B (based on Optum-style multiples) |
| RetailCo | ~$90B | ~6–7% | ~$5.5B | $33B–$45B (based on Walgreens/Rite Aid comps) |
| Total (Split) | – | – | – | $275B–$335B valuation range |
| Current CVS EV | – | – | – | ~$150B–$160B (as of mid-2025) |
Potential Value Uplift: +80–110% upside vs current enterprise value
How I Calculated That:
- SOTP Valuation Post-Split:
- HealthCo: ~$16B EBITDA × 15–18x → $240B–$290B
- RetailCo: ~$5.5B EBITDA × 6–8x → $33B–$45B
- Combined Implied Valuation = $275B–$335B
- Current Enterprise Value (EV):
- Market Cap: ~$90B–$95B
- Net Debt: ~$60B
- Current EV ≈ $150B–$160B
- Upside Math:
- Low-End Valuation ($275B) vs $150B EV = +83%
- High-End Valuation ($335B) vs $160B EV = +109%
That’s how I arrived at a realistic potential upside of 80–110%.
7. More Efficient Capital Allocation Post-Split
Today, CVS must balance investments in:
- Brick-and-mortar retail ops (expensive, low-return)
- Health plan operations (complex, but higher-ROIC)
- Tech, clinics, M&A, and pharmacy services
After a breakup:
- HealthCo could target >15% ROIC by focusing solely on Medicare Advantage, PBM, and value-based care
- RetailCo could shift from growth to free cash flow maximization, restructuring under a leaner capex plan
Each company could then attract investors aligned to their unique capital priorities–growth vs. yield.
8. Better Earnings Quality = Higher Multiples
Post-breakup:
- HealthCo’s earnings would be cleaner, less volatile, and more predictable–investors would pay a premium for that.
- RetailCo would benefit from margin transparency and could restructure under lower expectations but with clear cost-cutting pathways.
Think about what this means for PE or passive capital:
It’s easier to underwrite a 12x forward EBITDA business with 80% government-insured revenue than a muddled hybrid with unclear margin paths.
Conclusion
CVS has become too big, too messy, and too undervalued for its own good.
By splitting into RetailCo and HealthCo, CVS can:
- Unlock trapped valuation through higher-multiple re-rating
- Improve profitability by eliminating internal cross-subsidies
- Give each business the focus, capital structure, and leadership it needs
- Attract new, focused investor bases who understand each story
- Shrink regulatory risk and improve long-term strategic optionality
This isn’t just a breakup. It’s a value unlock. And the time is now.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
© 2025 MacroHint.com. All rights reserved.