Why this top broker thinks the Crown (ASX:CWN) share price is a buy right now

There’s more than the roll of a dice at play for this embattled casino operator.

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The Crown Resorts Ltd (ASX: CWN) share price didn’t join in the market rally today, but now could be the time to buy.

That’s the view of investment banker JPMorgan, which is tipping investors to buy shares in the scandal-hit casino operator before next week when Crown holds its investor day.

Catalysts for the Crown share price

That optimism isn’t reflected in the Crown share price at the moment as the company struggles to hold its head above break-even.

After spending most of the day in the red, shares in the casino closed 0.26% higher at $11.36. This compares to today’s 1.42% jump in the S&P/ASX 200 Index (ASX: XJO) at the close.

But Crown could still make a good bet if JPMorgan is to be believed. The broker reckons there are a few factors that could prompt analysts to upgrade their forecasts for Crown.

First, JPMorgan thinks management could provide reassurances that operations are normalising after the tumultuous period.

Other possible good news

That means the group’s free cash flow could see a marked improvement. Meanwhile, the broker noted a brighter outlook for Melbourne and Perth operations would also go a long way to helping investors rebuild confidence.

Said JPMorgan:

Earnings expectations for CWN vary quite broadly; the current FY23 range implies anything from another lockdown to all systems go.

The divergence is from Barangaroo’s contribution, and although difficult to forecast, there are guiding principles for estimating SYD earnings.

One way to quantify the upside from its new Barangaroo project in Sydney is to calculate the revenue per available room (RevPAR).

We have previously explored the incremental impact of main gaming floor revenues via RevPAR. In the previous instances, we assumed CWN Sydney would track at a similar average rate per room as Crown Towers Melbourne at around A$400 per night.

How much is the Crown share price worth?

Even then, that might prove conservative as average room prices on the Crown Sydney website suggest a figure of $850 a night might be more appropriate.

The broker then calculated the so-called flow through rate to the main gaming floor of the casino. This isn’t an exact science but it provides a guide to the earnings contribution from Crown’s latest resort.

“Taking our above analysis we can see that the additional revenue/earnings from the Barangaroo Gaming operations would add 5%-6% to consensus estimates in FY23,” said the broker.

There are still questions to be answered, but JPMorgan believes there’s significant upside for the Crown share price.

Its 12-month price target on Crown is $15 a share.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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