CVS Health shares rose 2% after hedge fund Glenview Capital Management proposed changes to the company’s strategy amid recent struggles. Learn more about the meeting and its impact.
Shares of CVS Health climbed 2% on Monday after news surfaced that Glenview Capital Management, a hedge fund led by Larry Robbins, is pushing for strategic changes at the company. Robbins and CVS CEO Karen Lynch are set to meet to discuss potential improvements for the healthcare giant, which has been struggling in recent months.
Hedge Fund Meeting Spurs Optimism
While Glenview has not yet revealed the specific changes it will propose, the upcoming meeting has already caught the attention of investors. Glenview Capital owns around $700 million worth of CVS stock, or about 1% of the company’s total shares. In the second quarter, Glenview increased its stake in the company by 440%, signaling its growing interest in CVS Health.
This increase in Glenview’s investment and its history of activist involvement has many speculating that major changes could be on the horizon for the company. Hedge funds like Glenview often take a hands-on approach, and CVS could benefit from such intervention, given its recent struggles.
CVS Faces Multiple Challenges
CVS Health, widely known for its pharmacy chain, is also a leader in the pharmacy benefit management sector. Unfortunately, this segment of the business has recently faced regulatory challenges. The company, alongside other drug middlemen, is currently being sued by the Federal Trade Commission (FTC) for allegedly driving up insulin prices.
In addition to legal troubles, CVS has seen its stock drop by nearly 23% this year, wiping out $26 billion in market value. The company has also cut its full-year earnings guidance for three consecutive quarters, leaving investors concerned about its future performance.
Aetna’s Role in CVS’s Struggles
Much of CVS Health’s current issues stem from its Aetna division, the third-largest health insurance provider in the U.S. While Aetna’s revenues increased by 21% last quarter, operating income took a massive hit, falling 40%. The downturn resulted from a costly gamble to attract more seniors to its Medicare plans, which ended up generating higher-than-expected healthcare costs.
This misstep has put significant pressure on the company, and it led to the resignation of Aetna’s former president, Brian Kane. In response, CVS CEO Karen Lynch and CFO Tom Cowhey have taken direct control of the Aetna segment, signaling a more hands-on approach moving forward.
Glenview’s Activist History
Glenview Capital Management is no stranger to activist involvement, especially in the healthcare sector. In 2017, the hedge fund successfully pushed for changes at Tenet Healthcare, resulting in the resignation of several board members and the eventual departure of its CEO. This activist track record makes Glenview’s involvement in CVS Health particularly noteworthy.
Larry Robbins, Glenview’s founder, is confident that he can convince CVS leadership to explore new strategic paths. Glenview’s assets under management total around $5.6 billion, with CVS, Tenet Healthcare, and Cigna representing some of its largest holdings.
Activist Investors Shaping Corporate Strategies
Glenview’s actions at CVS Health come at a time when activist investors are becoming more involved in shaping corporate strategies across various industries. Elliott Management, another well-known hedge fund, recently helped force out the CEO of Starbucks and is pushing for changes at Southwest Airlines.
With hedge funds playing a larger role in influencing major corporations, it’s clear that these activist investors are looking to create significant shifts in leadership and strategy. CVS Health could be the next company to experience such a transformation.
What Could This Mean for CVS?
The hedge fund’s intervention could lead to a new strategic direction for CVS, especially as the company grapples with regulatory challenges, declining stock value, and operational setbacks at Aetna. Investors are hopeful that Glenview’s input will spark much-needed improvements and return the company to a path of growth.
If CVS listens to Glenview’s proposals, we might see a more streamlined and effective strategy, possibly including divestitures, restructuring, or a new approach to managing its healthcare divisions. Whatever the outcome, the involvement of a major hedge fund like Glenview signifies potential changes for the future.
CVS Health’s recent share rise and the upcoming meeting with Glenview Capital suggest that the healthcare giant is open to making changes. With the company’s stock underperforming and challenges piling up, investors are eager to see what steps CVS will take to regain stability and growth. Glenview’s history of successful activism in the healthcare sector adds to the anticipation.
