UPDATE: J.P. Morgan Downgrades Penn Gaming and Initiates Neutral on Gaming and Leisure Following Penn Spin-off

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In a report published Thursday, J.P. Morgan analyst Joseph Greff downgraded Penn National Gaming
PENN
from an Overweight rating to a Neutral Rating and moved the price target to $15.00. In the same report, J.P. Morgan analyst Joseph Greff initiated a Neutral rating on Gaming and Leisure Properties
GLPI
and set the price target at $47.00. In the report, J.P. Morgan says "Following PENN's tax-free spin-off of Gaming and Leisure Properties, Inc. (GLPI or PropCo) on November 1, we are updating our estimates and rating for “new” PENN (OpCo) as well initiating a rating on GLPI. For PENN, we are lowering our rating to Neutral from Overweight. While we see valuation as undemanding, we think the stock is stuck given sluggish regional gross gaming revenue trends. Our Dec 2014 price target of $15 implies less than 10% annual upside. In addition, we are initiating a Neutral rating on GLPI and a Dec 2014 price target of $47, implying a similar annual upside profile of sub-10% (including the annual dividend). For the past year we have been positive on “old” PENN and, in our view, its strategically sound plan to separate into an OpCo/PropCo (see below), which we still believe to be valid, but with the difference now being our view that these positives are reflected in the valuations of both PENN (at 6.6x 2014E EV/EBITDA) and GLPI (at 15.0x 2014E EV/EBITDA). Hence, our Neutral ratings. In regional gaming, we prefer Overweight-rated PNK, which possesses a higher free cash flow yield than PENN." Penn closed on Wednesday at $14.54 and Gaming and Leisure closed on Wednesday at $44.90.
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Posted In: Analyst ColorDowngradesInitiationAnalyst RatingsJ.P. MorganJoseph Greff
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