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Old problems worry investors as CVS tries to head in a new direction

CVS Health wants to change. It wants it so bad it spent $70 billion on a health insurer. But old problems are challenging how quickly CVS can woo Wall Street.

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CVS in November closed its acquisition of Aetna, a transaction the company has touted as a truly transformational moment in its 56-year history. On Wednesday, CVS gave its forecast for the year, which disappointed investors and stoked fears about CVS’ core business.

For the full year of 2019, CVS forecasts adjusted earnings of $6.68 to $6.88 per share, below the $7.41 per share analysts polled by Refinitiv had anticipated and below the $7.08, adjusted, CVS reported for 2018.

The company also predicts adjusted operating income declines in two of its three business units — retail/long-term care and pharmacy services. (The third segment, health care benefits, does not have a year-over-year change estimate because it’s the newly acquired Aetna business.)

Meantime, CVS plans to spend just as much investing in Aetna this year as it expects to save from integrating it.

These lingering issues could distract CVS from transforming its business, an undertaking that analysts say will be a tough lift. If anything, the challenges are spooking investors about whether the Aetna acquisition can really help CVS navigate the tough realities of the retail pharmacy and pharmacy benefit management businesses.

Shares of CVS fell 8 percent Wednesday, on pace for their worst day since November 2016.

“We understand acutely the importance of balancing near-term execution with longer-term vision and we are confident that these actions will position us well in 2020 and beyond,” CVS CEO Larry Merlo said Wednesday on a call with analysts to discuss CVS’ fourth-quarter earnings results.

Pharmacies across the board are experiencing reimbursement pressure amid questions about how much they get paid for filling prescription drugs. Like its competitors, CVS said it’s feeling the pain.

“It’s impacting small operators and big operators,” CVS Pharmacy President Kevin Hourican said on the call. “It’s a secular headwind impacting everyone.”

CVS’ long-term care unit, from CVS’ 2015 Omnicare acquisition, is also becoming a drag the company’s financial results. The business provides long-term pharmacy services, mainly geared at seniors, especially senior living communities.

Drugmakers aren’t hiking prices like usual on branded prescription drugs, a problem for CVS’ pharmacy benefit management business, Caremark. CVS makes more money when prices are higher.

Plus, the bread and butter of the PBM business, rebates, also hang in limbo. The Trump administration wants Congress to ban rebates, or discounts drugmakers negotiate with PBMs to get drugs placed on formularies.

Executives assured analysts on a conference call Wednesday that they were already working to fix the issues. Still, in a year that was supposed to be spent focusing on its new vision, CVS finds itself trying to address numerous challenges within its old businesses.