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CVS Health Names Next CEO

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CVS Health Corp. named Karen Lynch as its next chief executive officer, putting a seasoned insurance executive in place to succeed longtime leader Larry Merlo. The shares jumped.

The change reflects how CVS has evolved under Merlo’s direction from a pharmacy chain into a health conglomerate that sells insurance coverage, administers drug-benefit plans and offers care, including Covid-19 testing.

Lynch, 57, joined CVS in 2018 when it bought Aetna, where she was seen as a likely successor to its CEO, Mark Bertolini.

Lynch will be one of the highest-profile female executives in business, leading a company with a market value of more than $80 billion. On Friday, CVS boosted its full-year forecast as it prepared to play a role in vaccinating people for Covid-19.

“My focus is on building on the strong foundation and positive momentum we have across the company to continue to address the human aspects of health,” Lynch said in a call with analysts Friday. Her appointment will be effective Feb. 1, and she will join the board upon assuming her new role, CVS said in a statement.

CVS gained 5.3% to $64.64 at 10:02 a.m. in New York trading Friday. Through the close on Thursday, the stock had declined 17% since the year began.

Lynch’s background matches the company’s ambitions, said Jefferies analyst Brian Tanquilut. “That’s where they want to go as a company, and that’s where her value will be,” he said.

Merlo, 64, became CEO in 2011 and molded CVS into a health-industry bellwether. In his nine years at the helm, CVS has expanded its number of stores to 9,900, along the way acquiring Aetna in 2018 for $68 billion.

He will remain on the board until CVS’s next annual meeting in May, and ill serve as a strategic adviser to assist with the transition until he retires on May 31, the company said.

“If we told you a year ago that to-date, 6 million people would have gone to their local CVS pharmacy for a diagnostic test related to some virus, it would probably get an eyeball roll,” Merlo said during the conference call. “The reality is, that’s happened.”

Pandemic Challenge

Like many health-care companies, CVS has been challenged by the coronavirus pandemic. The initial wave of infections that spread across the U.S. in the spring disrupted both its retail and its pharmacy business, as Americans avoided shopping and visits to the doctor.

However, some of those pressures have eased, and CVS boosted its outlook for the year on Friday after posting stronger-than-expected third-quarter earnings. The company has stepped up coronavirus testing at its stores, and its retail sales are climbing.

CVS reported adjusted earnings of $1.66 a share, beating analysts’ estimates of $1.33 a share, and $67.06 billion in revenue. Analysts were expecting $66.66 billion.

Retail revenue rose 6% from a year earlier to $22.73 billion. At the same time, however, new prescriptions slid from a year earlier, a sign that many Americans remain uneasy about going to the doctor in the pandemic. Infections meanwhile are rising again, with new daily cases topping 100,000 for the first time this week.

Elective surgeries have generally resumed, though how much medical care people are seeking varies across the country based on how the virus is spreading, Lynch said on the call.

Covid-19 Testing

The pharmacy chain now offers Covid-19 screening at about 4,000 of its nearly 10,000 stores, and the company will vaccinate residents and employees of long-term care facilities against Covid-19 through a partnership with the U.S. government.

Vaccines will also be available at its pharmacies in later stages of the rollout.

CVS now expects to open at least 1,300 Health Hub locations by the end of 2021, Merlo said on the call.

The hubs, to be located in remodeled stores, offer more health services than a typical CVS drugstore and are geared toward treating people with chronic conditions, such as diabetes and heart disease.

CVS will also introduce behavioral health services to the Health Hubs in January, Merlo said.

The company has already opened 450 Health Hubs. It had planned to open 1,500 by the end of 2021, but the pandemic has slowed renovations and those last 200 stores could spill over into 2022, Merlo said.

(Updates with additional context and detail throughout)

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