Callaway Golf Co. was upgraded to outperform from market perform at Raymond James on analyst optimism about the company’s ability to drive growth from its stake in TopGolf, a golf-themed restaurant chain. Analysts have a $21 price target on Callaway Golf shares. While Raymond James admits its difficult to value Callaway Golf’s 14% stake in TopGolf, which is privately held, a late 2017 funding round valued the company at $2.1 billion, putting Callaway’s stake at $290.0 million. The chain now has more than 50 locations, analysts say, and there are plans to add seven to 10 annually in the U.S. to reach the 130 goal. There’s also TopGolf’s “Swing Suites,” a luxury option, which opens the door internationally. “If we assume TopGolf’s value has increased by about half the rate of location growth, or 25%, since late 2017, this implies a current value of $2.6 billion, which then translates into a value to Callaway Golf of $362 million, or $3.85 per share,” Raymond James wrote. In addition, analysts led by Joseph Altobello think Callaway Golf is being “overly penalized” for the acquisition of the outdoor clothing brand Jack Wolfskin. In its most recent earnings release, Callaway Golf revised its 2019 outlook based on negative impact from the acquisition. “The greatest risks to our more bullish stance on the shares include the possibility that the Jack acquisition may not achieve or even approach the targets Callaway has laid out, and at the same time causes management to lose focus on its other businesses,” analysts wrote. Callaway stock has gained 19.5% for the year to date while the S&P 500 index is up almost 19% for the period.Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news.
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