Activist investors sometimes get a bad rap. But often times, they buy a significant stake in a company, at last 5%, and push for management to make changes. For a struggling company whose share price has lagged, that can be a good thing.
Even the news of an activist investor getting in can be a sign that improvements are on the way. The only question is whether the activist pushes for them, or if management steps up.
Shares of struggling pharmacy store giant CVS Health Corporation (CVS) are getting an interest from Glenview Capital, looking to make changes at the company. Specifically, Glenview is looking for ways to improve the company’s operations.
Given CVS’s low-profit margin of 2%, there are plenty of opportunities that could significantly increase profitability.
CVS shares also trade at 8 times forward earnings, suggesting that the stock is a value play here. Improving profitability could mean a big move higher for shares.
Action to take: Shares are a value play here, and an activist campaign could lead to unlocked shareholder value. Plus, at current prices, CVS pays a 4.3% dividend.
For traders, the January $65 calls, last trading for about $3.55, could see mid-double-digit returns on the trade, assuming shares start to trend higher with activists putting the company in the spotlight.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.