Deutsche Bank Positive on Rumored Gaming and Leisure (GLPI)/Isle of Capri (ISLE) Deal

Deutsche Bank maintained a Buy ratingo n Gaming and Leisure (NASDAQ: GLPI) with a price target of $43. Analyst Carlo Santarelli commented on rumors it will acquire Isle of Capri Casinos, Inc. (NASDAQ: ISLE), calling the math "powerful."

"For starters, we assume a straight sale of ISLE. While a sale leaseback is a possibility, we see a straight sale as more likely. Ultimately, the math to GLPI is largely unchanged regardless of the setup, though a straight sale likely elongates the process given our view that multiple operators are likely to be needed. Under our sale assumptions, we believe GLPI could pay 9.0x for ISLE, which values ISLE shares at ~$15.80 (~78% premium to current levels) and post selling the operations (we assume 6.5x sale price and an implied purchase price to GLPI of 10.3x post corporate expense savings), we get to equity value accretion for GLPI of ~20% from current levels. Our equity value accretion stems from our view that the transaction, at the above multiples, would add ~$0.42 to the dividend ($6.96 in present equity value at the current 2015 dividend yield of 6.1%)," said Santarelli.

"In the face of 18% short interest, we think the following positive catalysts are likely to change the setup in the stock in the near term; 1) we see upside to 2Q14 Consensus estimates for PENN, 2) we expect further clarity on the Meadows transaction in the coming weeks and we think this will empirically highlight the merits of the deal, and 3) we anticipate investors will spend time reviewing the potential ISLE transaction and we think this education will further enforce the power of the arbitrage opportunity that exists for GLPI," added the analyst.

For an analyst ratings summary and ratings history on Gaming and Leisure click here. For more ratings news on Gaming and Leisure click here.

Shares of Gaming and Leisure closed at $33.97 yesterday.

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