CVS Health Plunges to 12-Year Low; PBM Legislation Threatens Earnings

CVS Health Corporation (CVS) has been on a downward spiral, with its stock price plummeting to a 12-year low. The company's recent struggles can be attributed to a combination of factors, including rising unemployment, legislative scrutiny, and the potential impact of bipartisan legislation targeting pharmacy benefit managers (PBMs). This article explores the challenges CVS Health faces and the potential consequences of the proposed PBM Act on the company's earnings and stock price.

CVS Health's stock price has been in a freefall, dropping by 17.2% this month alone. The company's market capitalization has also taken a significant hit, declining to around $310.64 billion from its previous high of $621.28 billion. This dramatic decrease in value can be largely attributed to the proposed Patients Before Monopolies (PBM) Act, which aims to force health insurers to divest their pharmacy businesses within three years.



The PBM Act, introduced by Sens. Elizabeth Warren (D-MA) and Josh Hawley (R-MO), could have a devastating impact on CVS Health's earnings. Deutsche Bank analyst George Hill estimates that the legislation could cut the company's operating earnings by over 50%. This potential loss in earnings would significantly affect CVS Health's stock price and market capitalization, as the inverse relationship between earnings and stock price suggests a similar percentage drop in stock price.

CVS Health's competitors, such as UnitedHealth (UNH) and Cigna (CI), may also face significant impacts from the proposed PBM legislation. Deutsche Bank estimates that Cigna could lose around 40% of its operating profit if it separates its PBM business from other operations. UnitedHealth, however, may see minimal impact, with a risk of less than $200 million from its $30 billion operating profit.

The broader pharmaceutical and healthcare sectors could experience increased competition and potential changes in drug pricing and distribution dynamics. The proposed PBM Act aims to cut off revenue and market power for PBM giants and the conglomerates that own them, directly benefiting independent pharmacies. However, the impact on patients is less evident, according to experts.

To mitigate the potential losses from PBM divestment, CVS Health could explore alternative revenue streams. Expanding its MinuteClinic services and leveraging its extensive retail footprint to expand into new product categories, such as over-the-counter medications, personal care items, and wellness products, could help the company reduce its reliance on PBMs and better position itself for future growth.

In conclusion, CVS Health faces significant challenges due to its stock price plummeting to a 12-year low and the potential impact of the proposed PBM Act on its earnings. The company must adapt its business model and explore alternative revenue streams to minimize the impact of potential regulatory changes on its long-term earnings. The broader pharmaceutical and healthcare sectors may also experience increased competition and changes in drug pricing and distribution dynamics as a result of the proposed legislation.