CVS Will Split Into Two Public Companies by Mid-2028

CVS Health will split into two publicly traded companies by the first half of 2028, separating its roughly 9,000-store retail pharmacy business from its insurance arm Aetna and pharmacy benefit manager Caremark. The company's shares dropped about 12% on the announcement, a stark counterpoint to management's insistence that the decision comes from a position of strength.

CEO David Joyner told analysts Wednesday that the split arrives "out of strength" and follows a strategic review. "What's changed in two years is the fact that we now can look at this business and the assets that are assembled and really determine, without any distress or without anything that we have to do, what is the right strategic decision to make," Joyner said.

Why the same breakup failed in 2023

CVS considered a breakup more than two years ago and walked away, with analysts openly questioning whether retail pharmacy could survive alone. "Back then, the idea of retail standing alone was unthinkable," Brian Tanquilut, senior equity research analyst at Jefferies, told CNBC.

The economics have shifted since. Joyner, speaking on CNBC's "Squawk on the Street," said that in 2024 the company was "in a turnaround" without the flexibility, cash or performance to execute a split. CVS has now beaten Wall Street earnings estimates for eight consecutive quarters and raised guidance several times over two years. The company expects at least $15.5 billion in operating cash flow in 2026 — a roughly 70% jump from $9.1 billion in 2024 — and says it hit its leverage target early. Since taking over in 2024, Joyner has pursued $2 billion in cost cuts, store closures, leadership shakeups and Medicare Advantage cost discipline.

Takeaway: two years of steady earnings and cash growth are the entire case for why this split is viable now.

What does each company get?

The healthcare company will keep Aetna, Caremark, CVS's specialty pharmacy, primary care chain Oak Street Health and home-visit provider Signify Health. The pharmacy company will hold the roughly 9,000 retail stores, mail pharmacy operations and MinuteClinic. Both sides can stand alone, said Michael Cherny, senior research analyst at Leerink Partners: Caremark is one of the country's three largest PBMs, and CVS runs one of the largest retail pharmacy footprints in the U.S.

Retail has also gained from rivals' retreat. Widespread store closures at Walgreens, Rite Aid and other operators created market-share openings, analysts told CNBC. CVS's CostVantage program replaced traditional reimbursement with a cost-based model, aligning payment with dispensing costs and steadying profits. Retail remains low-margin — adjusted operating margins of roughly 4% to 5% — but RBC Capital Markets analyst Ben Hendrix argued in a Wednesday note that the discount investors assign to retail has weighed on CVS's overall value and obscured the earnings strength of Aetna and Caremark.

Takeaway: retail is stable enough to stand alone, but it is still the low-margin, slower-growing half of the company.

Can the commercial ties survive separation?

The split raises the question of how much of the internal relationship survives. Caremark has historically steered members to CVS stores through preferred pharmacy arrangements, including the Maintenance Choice program that lets members fill maintenance medications at CVS pharmacies or by mail. Those arrangements fed prescription volume to CVS stores, and the profits stayed under one roof.

Hendrix also flagged a risk to Aetna's Medicare Advantage quality ratings, which determine government bonus payments, since retail pharmacists have helped engage Aetna members. Joyner told analysts the synergy would be "preserved in commercial agreements between the two organizations," adding that "we don't need the integration of an operating structure." CVS will spend the next 15 to 18 months negotiating those agreements.

Cherny, in an afternoon note, put the burden of proof squarely on those contracts: "The issue is not whether the companies can continue working together in some capacity, but whether any future contractual arrangements preserve the SAME competitive advantages and flexibility as today under common ownership."

Takeaway: the synergy story now depends on contracts that do not yet exist.

What about regulators and the integration bet?

The breakup follows mounting legal pressure on PBMs. Republicans in Tennessee and Arkansas passed laws barring one company from owning both a pharmacy and a PBM, though the Arkansas measure is held up in court. Cherny said state lawsuits keep piling up, though he was uncertain whether regulatory pressure forced the split: "It's unclear if it just became, for lack of a better term, too tenuous to move forward with those two entities combined as one. I'm not sure." Joyner told the Wall Street Journal the split was not driven by regulatory issues.

The move also unwinds, in part, a $70 billion bet. CVS bought Aetna in 2018 on the argument that combining insurance, PBM, retail and providers under one roof would coordinate care and build competitive advantage — a model CVS was still promoting at its investor day last year.

What could still go wrong?

Both companies face real risks alone. Tanquilut cautioned that some retail gains came from competitors' closures, raising doubts about sustainability, and the business remains exposed to consumer pressure and online pharmacy competition. Caremark faces continued regulatory scrutiny plus potential headwinds from changes to the federal 340B drug discount program, which could weigh on the business in 2027, Tanquilut said. Aetna is still mid-way through a multiyear plan to rebuild margins in Medicare Advantage.

The split is ultimately a wager that investors will value these businesses more honestly apart than together. By mid-2028, the market will render its verdict on whether each half can thrive without the other.