WOLFE RESEARCH HEALTHCARE CONFERENCE 2026 - CVS HEALTH CORP

Explicit Guidance:

• CVS Pharmacy (Retail): Guidance implies a return to low single-digit growth for Total Prescription Volume (TPV) and Average Prescription Price (APP) starting in 2026 and continuing through 2028; previously guided for minus 5% growth prior to turnaround.
• CVS Health (Remaining Co): Expects mid-to-high single-digit growth for the PBM segment, with margins expected to recover to 3% or better (historical levels) by 2028.
• Profitability/Troughs: 2027 is identified as a "trough year" for the overall CVS Health business due to 340B pressures and rebate guarantee mitigation costs; recovery and return to prior growth rates are expected in 2028.
• Financial Structure: Both split entities will maintain solid investment-grade ratings; no deleveraging is anticipated despite the transition from debt-to-EBITDA to debt-to-capital ratios for CVS Health.
• Capital Deployment: The $35 billion of deployable capital previously projected at the Investor Day remains valid, though it will be allocated between the two standalone companies.
• Cost Savings/Dis-synergies: Management expects net dis-synergies (running costs of two HQs) to be in the range of $500 million, dismissing market estimates of $1+ billion as inaccurate; one-time separation costs will be managed but are not expected to impact EPS materially in a way that threatens guidance.
• Oak Street Recovery: Post-2028 loss recovery for Oak Street Health is projected, with management citing a potential loss reduction of approximately $500 million (relative to prior trajectory) by 2027-2029 as part of the PBM's margin recovery.

Business-Segment Outlook:

• CVS Pharmacy: Focus on stabilizing reimbursement pressures to create a structural opportunity for growth; leveraging 9,000 local touchpoints to expand into Direct-to-Consumer (DTC) offerings (e.g., weight loss) and clinical services; continued focus on generic cost advantages via the Red Oak Sourcing relationship.
• CVS Health (PBM & Specialty): Strategy centers on high-acuity/high-cost markets; maintaining the "one great company becoming two great companies" thesis; leveraging the Caremark specialty pharmacy to control formularies and brand purchasing, creating a competitive dynamic within the PBM structure.
• Medicare Advantage (MA): The MA franchise is in its third year of "dialing in" right markets, products, and cost positions; management prioritized margin over growth during the recent Open Enrollment Period; expects to resume the path to 3%+ margins in 2028.
• Specialty Pharmacy: Remains the "fastest-growing part of health care"; 80%+ of specialty products flow through limited distribution channels, insulating it from independent pharmacy regulatory pressures; CVS retains a dominant position in this space.
• Operational Structure: Separation eliminates "cross-subsidization" of retail scripts; both entities will operate under a cost-based transparency model (CostVantage for retail, TrueCost for PBM) to pass savings to payers and patients.

Market and Competitive Outlook:

• PBM Competitive Landscape: Shift away from the old model where PBMs switched between one large national pharmacy to another; the delta between "narrow" and "broad" network value has narrowed, reducing the threat of share loss to competitors if the PBM changes.
• Reimbursement Trends: Industry-wide reimbursement erosion is expected to stabilize beyond 2028, removing a primary structural headwind for pharmacy profitability.
• Regulatory Environment: Anticipates continued pressure on retail pharmacy PBMs in states with strong independent pharmacy voices, but believes the separation of the PBM from retail pharmacy mitigates this "end-of-one" risk for the standalone CVS Pharmacy.
• Pricing Models: Regulatory shifts (FTC, CAA, Department of Labor) are driving a transition to fee-based models for PBM services; management views this as a manageable evolution similar to the migration of CVS Pharmacy to the CostVantage model.
• Market Share: CVS Pharmacy expects to gain share based on service levels, lowest cost of goods, and operational efficiency, rather than relying on cross-subsidization from a PBM parent.

Macro / Industry Outlook:

• Demographics: Long-term tailwinds from an aging population are expected to drive growth in prescription volumes.
• Affordability: Management views healthcare affordability as a persistent, unaffordable challenge in the US, creating a market opportunity for their local, tech-enabled service model to reshape care delivery.
• Regulatory Pressures: Acknowledges 340B program pressures and the "fee-based model" transition as key headwinds to be navigated through 2027, with mitigation expected to follow.

Strategic Initiatives:

• Corporate Separation: Execution of a split into two independent, publicly traded companies: CVS Health (PBM, Specialty, Value-Based Care/Oak Street) and CVS Pharmacy (Retail).
• Asset Focus: CVS Health will continue to invest in Oak Street Health and Signify assets to address affordability and access; CVS Pharmacy will focus on DTC expansion and local care transformation.
• Capital Allocation: Both entities will continue disciplined capital deployment for dividends and share repurchases; M&A will be pursued where strategic for each specific business model.
• Leadership Transition: Prem Shah (current EVP of Pharmacy) becomes CEO of CVS Pharmacy; David Joyner remains CEO of CVS Health; the core leadership teams are largely retained and elevated.

Risks and Headwinds to Outlook:

• 2027 Trough: Earnings and growth rates for CVS Health will likely be depressed in 2027 due to 340B impacts, rebate guarantee losses, and separation one-time costs before returning to growth in 2028.
• Regulatory Uncertainty: Continued state-level regulatory attacks on PBMs with attached retail pharmacies (though mitigated by the split) and federal changes to PBM pricing models.
• Separation Complexity: Potential for execution risks during the split, including the establishment of two separate corporate infrastructures (legal, HR, IT) and managing the "dis-synergy" of running two public companies.
• Market Competition: The potential for payers to shift to narrower networks or alternative pharmacy models if value propositions (cost/service) are not maintained.

Management Tone on the Future:

• Confidence Level: High confidence in the "two great companies" thesis; management emphasizes being in a "position of strength" rather than a defensive position.
• Hedges: Explicitly frames 2027 as a "trough" and "mitigation" period for CVS Health, managing expectations for that specific year before 2028 recovery.
• Strategic Clarity: Strong emphasis on structural advantages (scale in generics, specialized specialty care, local footprint) that independent entities can better exploit than a combined conglomerate.
• Discipline: Repeated emphasis on "prioritizing margin over growth" (MA) and "cost-based transparency" (Pharmacy) as key drivers for future success.

Miscellaneous:

• Synergy Misconceptions: Management actively corrects market misconceptions regarding "synergies" lost; they state that significant synergies between Caremark and CVS Pharmacy were never fully realized due to the operational "firewall" that existed for two decades, meaning dis-synergies will be minimal (approx. $500M).
• Valuation: The split is intended to unlock value by allowing each company to be valued as a standalone leader in its specific high-growth segment, with the expectation that they will grow faster alone than together.