Bernstein: Media reports say CVS plans retail pharmacy split; valuation improvement still hinges on PBM margins

What is the split reported by the media?

According to The Wall Street Journal and Reuters, CVS is preparing to split into two independently listed companies: the retail pharmacy business would be separated, while insurance and healthcare services would remain in the other company. The plan is still under discussion.
Under the reported framework, the insurance and pharmacy benefit management (PBM) company would include Aetna, Caremark PBM and its specialty pharmacy, Oak Street Health, and Signify Health. PBMs mainly sit between insurance and pharmacy services.
The retail pharmacy company would primarily include approximately 9000 retail pharmacies, mail-order pharmacies, Minute Clinic, and the consumer AI assistant Health100.

Bernstein believes retail pharmacy has limited strategic importance. Separating it from the more attractive insurance and specialty pharmacy assets could sharpen business focus and create valuation opportunities.
However, the firm sees significant synergies between Caremark and retail pharmacy, some of which would be lost in a split: the existing model can direct business to CVS retail pharmacies and may also combine the two sides’ drug purchasing scale. By contrast, Bernstein sees fewer benefits in keeping Aetna and retail pharmacy together.

Bernstein believes a split would not resolve the near-term PBM concerns currently weighing on CVS shares. The firm judges that PBM policy reform is largely complete and margins will fall to a lower but stable level, and therefore supports keeping PBM together with Aetna.
However, Bernstein expects investors to be more likely to assign a higher valuation multiple to the insurance, PBM and specialty pharmacy combination only when the market believes PBM margins can stabilize.
The firm maintained its Outperform rating and $112 price target on CVS; relative to the $91.41 closing price on 3 November 2026, the target implies approximately 23% upside.

Bernstein believes the proposal under discussion at CVS does not address two types of vertical integration that it considers more likely to become a focus of breakups or policy: separating dispensing businesses such as specialty pharmacy from PBMs, and separating insurers from healthcare providers such as value-based care providers.
The firm believes CVS could prompt other diversified healthcare services companies to consider strategic changes. For example, UnitedHealth might consider splitting UHC and Optum, but Bernstein expects the company to prefer the status quo unless policy or regulatory requirements make a split necessary.
Bernstein also believes Cigna could eventually consider spinning off its specialty pharmacy asset if shareholders do not recognize its value in Cigna’s share price, or if regulatory and policy pressure increases.