CVS Health shares rise as hedge fund seeks change

In the United States, CVS Health has faced significant challenges this year, with its stock price dropping nearly 23% and a market cap loss exceeding $26 billion. The company has been under pressure due to disappointing earnings guidance, which has been cut for three consecutive quarters. A major factor contributing to these issues is the performance of Aetna, CVS's health insurance segment, which has seen a 40% decline in operating income despite a 21% increase in revenue. This decline is attributed to higher-than-expected costs from new Medicare enrollees, many of whom are seniors seeking care after delays caused by the COVID-19 pandemic. In response to these challenges, hedge fund Glenview Capital Management has increased its stake in CVS by 440% and is advocating for changes within the company. Glenview, which owns approximately 1% of CVS, has a history of applying activist pressure in the healthcare sector. The firm’s founder, Larry Robbins, is set to meet with CVS CEO Karen Lynch to discuss potential strategies for improvement. The situation at CVS is further complicated by legal scrutiny, as the company is one of three pharmacy benefit managers recently sued by the Federal Trade Commission for allegedly inflating insulin prices. This legal challenge adds to the pressure on CVS to reform its practices and improve its financial performance. As CVS navigates these turbulent waters, the leadership transition, with Lynch taking direct control of Aetna, may be pivotal in addressing the operational challenges and restoring investor confidence.