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By Tomi Kilgore

Deutsche Bank believes the hype over a Sycamore buyout and subsequent breakup has gone too far, and puts the deal at risk

Shares of Walgreens Boots Alliance Inc. have bounced sharply over the past few months, as reports that a buyout deal, followed by a breakup, have finally given investors something to cheer about.

But now there's a catch. The hype of a deal may have taken the drugstore chain's stock (WBA) up too much, enough to put the deal at risk, or reduce it to a buy-under deal.

"We believe the shares have run too far on the transaction speculation and downgrade [Walgreens'] shares to sell," wrote Deutsche Bank analyst George Hill in a note to clients.

His $9 stock price target implies about 20% downside from Thursday's closing price.

The stock dropped 2.3% in premarket trading Friday.

It had soared 24.5% amid a three-month winning streak through Thursday, the longest such streak since the three-month stretch that ended January 2021.

The win streak started just after the stock had closed at a 28-year low of $8.24 on Nov. 20, as the company was losing the fight against competition and inflation.

The deal hype started in early-December, when the Wall Street Journal reported Walgreens was in talks to sell itself to Sycamore Partners.

Read: Walgreens' stock could see its best day ever. Is a turnaround really in store?

After some brief weakness in late January, after CNBC said the deal with Sycamore may be dead, the Financial Times reported on Wednesday that not only was the deal on, but it could also set the stage for a three-way breakup of the company.

And there have been a number of examples showing how Wall Street likes a split-up, including the three-way breakup of General Electric, now known as GE Aerospace (GE). 3M Co. (MMM) also spun off its healthcare unit. GE's stock reached a 24-year high earlier this month, and 3M shares hit a 3-year-plus high last month.

Also read: Should Comcast split into three? This analyst says a breakup would mean big upside.

For Walgreens, Deutsche Bank's Hill said "the deal strikes us as incredibly complicated and unlikely to be consummated at a premium to the current share price."

He said the company's core U.S. business is "especially challenged," so a breakup wouldn't necessarily help the stock.

With Walgreens' stock price now well above what most sponsors of the deal view as an acceptable internal rate of return, "we believe either a take-under could occur or Sycamore will be forced to walk away."

Over the past 12 months, Walgreens' stock has tumbled 46.9%, while shares of rival CVS Health Corp. (CVS) have lost 14.2% and the S&P 500 index SPX has rallied 15.6%.

-Tomi Kilgore

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