CVS raises guidance while preparing to unlock two focused healthcare businesses

CVS Health Corporation (NYSE:CVS) is preparing to break itself in two after a quarter that gave management more confidence in the underlying business. The company plans to create separate, publicly traded healthcare solutions and retail pharmacy companies by the first half of 2028, while raising its full-year 2026 earnings and operating cash-flow guidance.

Two businesses, one planned separation

The proposed split would place Aetna, CVS Caremark, CVS Specialty, Oak Street Health and Signify Health in a healthcare solutions company that will initially retain the CVS Health name. The second business, to be called CVS Pharmacy, would contain roughly 9,000 pharmacies, mail pharmacy, MinuteClinic, virtual care and the Health100 technology services business.

CVS says the separation is intended to be tax-free to the company and its shareholders for US federal income tax purposes. Existing shareholders are expected to own shares in both companies, with the transaction still dependent on final board approval, an effective Form 10 registration statement and customary confirmation of the intended tax treatment. David Joyner is slated to lead the healthcare solutions company as chairman and chief executive, while Prem Shah is expected to become chief executive of CVS Pharmacy.

Third-quarter growth supports higher 2026 targets

The corporate reorganisation was announced alongside third-quarter revenue of US$108.4 billion, up 5.4% year on year. GAAP diluted earnings per share rose to US$1.68 from a loss of US$3.13, although the comparison was heavily affected by the absence of a US$5.7 billion goodwill impairment charge recorded in the prior-year quarter. On the company’s non-GAAP measure, adjusted EPS rose to US$2.09 from US$1.60.

CVS raised its full-year GAAP diluted EPS target to at least US$6.98, from a previous range of US$6.84 to US$7.04. Adjusted EPS guidance increased to at least US$8.20 from US$7.90 to US$8.10, while operating cash-flow guidance rose to at least US$15.5 billion from at least US$11.5 billion. Cash flow from operations reached US$15.3 billion in the first nine months.

Benefits margin recovery meets pharmacy pressure

The Health Care Benefits segment supplied the clearest improvement: quarterly adjusted operating income increased to US$912 million from US$314 million, while its medical benefit ratio fell to 91.3% from 92.8%. The ratio measures the share of premium revenue spent on medical benefits, so the decline was favourable for the segment, which CVS attributed primarily to improved performance in its government business.

Health Services revenue rose 9.5% to US$54.0 billion, helped by pharmacy drug mix and brand inflation, while adjusted operating income increased 2.7% to US$2.1 billion. Pharmacy and Consumer Wellness revenue fell 2.0% to US$35.5 billion amid regulatory-related price reductions, generic drug introductions and reimbursement pressure, but adjusted operating income still rose 10.6% to US$1.6 billion. CVS also cautioned that elevated cost trends and possible macroeconomic headwinds remain relevant to the rest of 2026.

The separation still has an execution test

CVS says each future company is expected to have an investment-grade rating, strong free cash flow and an attractive dividend, but it has not yet disclosed how assets, debt, costs or dividends will be allocated between them. The proposed benefits therefore remain plans rather than delivered outcomes, and the company acknowledges that the separation could prove more costly or time-consuming than expected, or fail to qualify for the intended tax treatment.

The next important disclosures should show whether the stronger Health Care Benefits performance can persist and how the two businesses will be capitalised. Until the transaction closes, CVS will continue to operate as one company, leaving investors to assess both the improving numbers and the price of dismantling the integrated model that produced them.