Why CVS's CEO shakeup is the best decision it can make right now

CVS (CVS) has announced that it has replaced its CEO Karen Lynch with longtime executive David Joyner, sending shares sinking in Friday's trading session.

Stephanie Davis, Barclays senior research analyst and managing director, joins Market Domination to discuss the leadership shakeup and what it means for CVS moving forward.

"I think the decision to put David Joyner in as CEO is probably the right one and the best one they can make right now. David has turnaround experience. He has a very straightforward pull-no-punches style that we saw in his internal memo to the company today. I think all of that is indicative of the directness that we're going to expect out of him and something that CVS really needs as they go into this next era," Davis tells Yahoo Finance.

While Joyner has stepped up into the roll, Davis notes that the biggest question now remains around who leads Aetna. "That leaves a pretty significant vacuum in a seat for Aetna, which is the entirety of what's been driving the downside for the past few quarters," she explains. The replacement should be announced by the end of 2024.

As some shareholders express concerns about Joyner's qualifications given his background in pharmacy benefit managers (PBM), Davis argues that the move is more about "someone who is a proven executive who has been with the organization for a very long time, who has done a turnaround, and will do a very good job of it given his past history."

She continues, "I also think it would be remiss not to mention what CVS has done with its PBM — much more creative and much more consumer-facing. Think about CostVantage. That couldn't happen, that level of consumer price transparency, without someone really taking a crucial look at the PBM."

Watch the video above to hear why Davis is still Overweight on CVS's stock.

To watch more expert insights and analysis on the latest market action, check out more Market Domination here.

This post was written by Melanie Riehl

Video Transcript

And executive shake up has come for CBS.

The company announcing its replace Ceo Karen Lynch with long time Pharmacy benefits executive David Joiner, the shares have been sinking today following that news for more on what this means for CBS moving forward.

We want to welcome in ST Stephanie Davis Barclay, senior research analyst and managing director of health Care.

Stephanie.

Do you think that David Joiner is the right choice to take over as head of his CV?

You know, I think the decision put David Joyner and as CEO is probably the right one and the best one they can make right now, David has turnaround experience.

He has a very straightforward pull no punches style that we saw in his internal memo to the company today.

I think all of that is indicative of the directness that we're going to expect out of him and something that CV S really needs as they go into this next era.

So Stephanie, what should be Joyner's priorities?

I mean, the biggest question right now is who's going to lead Aetna, right?

You had Karen Lynch out today, you have Brian Kane out last quarter that leaves a pretty significant vacuum in a seat for Aetna, which is the entirety of what's been driving the downside for the past few quarters.

I think we'll see an announcement soon.

David Joyner has said that we're going to be getting a new Aetna head by year end.

It cannot come soon enough.

Um, Stephanie, you know, it's interesting that you talk about that.

He's the right guy to lead the company here.

I think it's interesting.

His background is also from the Pharma Pharmacy Benefits Management business.

That a bit, at least politically that business has been not just a TV.

Yes, but sort of across the industry under a lot of scrutiny.

Um And obviously the shares are going down today as well.

So I, I, you know, what are you, what do you think are maybe the things he needs to work on here or why?

Maybe the street is questioning this choice.

So I don't think they're questioning the choice.

The stock has had such a pull back because of the scale of the guidance cut that they had, right?

You saw very negative results at the Aetna side of the business.

That's not really something that you're going to be able to fix in a near term fashion.

But I wouldn't read into his background at PB MS as saying, oh my gosh, CBS is leaning into the PB M business.

Instead, it's someone who is a proven executive who has been with the organization for a very long time who has done a turnaround and will do a very good job of it given his past history, I also think, you know, would be remiss not to mention what CBS has done with its PB M. Much more creative and much more consumer facing, think about cost vantage.

That couldn't happen that level of consumer price transparency without someone really taking a crucial look at the PB M. Stephanie.

Let's go.

Let's get your take on Karen Lynch.

I'm interested to get your take there.

What in your opinion, did she get wrong?

I think it's just there were a number of missteps this year, right?

The leadership change doesn't come as a huge surprise to myself.

I think for many investors in the community just because there has been um I think four guidance cuts here to date.

And so it's not a question of really how they're able to execute so far.

Some of it's more on the question of execution specifically in Aetna, which is what they got wrong.

Um And what it's worth the retail pharmacy and the PB M have done quite well this year.

Well, and I was gonna say it sounds like also the company has pushed back against the idea that it might split itself up.

Um Do you think that's the right choice?

Do you think CBS is stronger and being valued correctly as that combined business?

So we're overweight in the stock?

And that is because I do not think it is being valued correctly, but I don't think a sum of the parts is the right way to approach it, right?

A potential breakup seems highly unlikely.

Not only because the amount of dis energy you create.

Don't forget CV S saw set 750 million in cost energies from Aetna.

They saw 500 million when they bought Caremark.

So there's a lot of value in combining these assets together.

But more than that, you can do very strategic things by having a PB MA payer and a retail pharmacy together.

What I mentioned about cost Spanish before, that wouldn't be possible without having all of these three assets kind of working in tandem.

Stephanie, great to have you on the show today.

Thanks so much for joining us.

Thank you for having me.