The potential merger of Caesars Entertainment and billionaire Tilman Fertitta's Golden Nugget Casinos is part of a larger trend of M&A activity in the gaming industry spurred by low valuations, according to Chad Beynon, senior analyst at Macquarie.
Beynon told CNBC's "Power Lunch" on Wednesday that despite strong fundamentals, valuations in the gaming industry are "near 5-year lows," which may be the reason more companies are exploring mergers.
"It's been wild times in gaming," he said. "Stocks in my space are off anywhere between 10 [percent] and 50 percent."
Sources told CNBC on Wednesday that Golden Nugget Casinos owner Tilman Fertitta wants to make a deal with Caesars Entertainment that values the casino at $13 per share.
The reverse merger, with Caesars as the acquirer, would exchange stock in a private company owned by Fertitta for shares in Caesars. Fertitta, who also owns the Houston Rockets basketball team, would serve as chairman and CEO of the combined company.
Shares of Caesars jumped more than 14 percent immediately following news of the potential merger.
Beynon maintains his $15 price target for Caesars even though it is higher than what Fertitta's proposed deal would value the shares.
"The fun is just getting started at Caesars," he said. The casino giant emerged from bankruptcy last year after a restructuring process that lasted more than two years.
Although Golden Nugget Casinos is a much smaller brand, Beynon said the potential merger could still provide a lot of value to Caesars. Golden Nugget Casinos is part of a conglomerate of restaurants and entertainment complexes called Landry's, which operates more than 600 properties and includes names such as Morton's steakhouse, Bubba Gump Shrimp and Rainforest Cafe.
Fertitta could provide Caesars with valuable expertise from his "years of building these 60 brands" under Landry's, Beynon said. Landry's large customer base across brands could give a boost to Caesars' "hub-and-spoke approach," which relies on its locations across the U.S. to spark brand loyalty and drive customers to the Caesars Palace in Las Vegas.
Fertitta, who is also host of CNBC's "Billion Dollar Buyer," and Landry's declined to comment on the details of a potential deal.
— CNBC's David Faber, Sandy Cannold and Reuters contributed to this report.