{"id":8356,"date":"2023-05-13T21:44:13","date_gmt":"2023-05-14T01:44:13","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/buy-topgolf-callaway-stock-the-battered-shares-are-worth-a-shot\/"},"modified":"2023-05-13T21:44:14","modified_gmt":"2023-05-14T01:44:14","slug":"buy-topgolf-callaway-stock-the-battered-shares-are-worth-a-shot","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=8356","title":{"rendered":"Buy Topgolf Callaway Stock. The Battered Shares Are Worth a Shot."},"content":{"rendered":"

Fans of
\n Topgolf Callaway Brands,<\/span>
\n one of the few pure-play golf stocks, think it can deliver the investment equivalent of a hole-in-one. But lately, the performance of its shares has resembled a poorly struck shot into the deep rough.<\/p>\n

The stock (ticker: MODG) cratered by 13%, to $18.80, on May 10, the day after Topgolf reported first-quarter results, and closed on Friday at $17.28. While earnings, at 17 cents a share, beat the consensus 15 cents estimate, the positive news was accompanied by reduced guidance for one segment of operations, and Wall Street likes lowered guidance the way players in the PGA tournament, which starts next week, like sand traps and water hazards.<\/p>\n

\n

However, the bull case remains. Jonathan Boyar, president of Boyar Intrinsic Value Research, says the selloff makes Topgolf Callaway more attractive. \u201cIt\u2019s just giving investors a great entry point to own a fast-growing business,\u201d he contends.<\/p>\n

That business has three segments: <\/p>\n

The Topgolf unit operates driving ranges where people can compete against one another or just hang out. These feature the company\u2019s Toptracer ball-flight tracking technology, and include hitting bays, bars, dining areas, and special-event spaces. Stay-at-homes can play Topgolf\u2019s World Golf Tour <\/em>videogame. <\/p>\n

<\/p>\n
\n
\n\n\n\n\n\n\n\n\n\n\n\n
Headquarters<\/th>\nCarlsbad, Calif.<\/th>\n<\/thead>\n
Recent Price<\/b><\/td>\n$17.59<\/td>\n<\/tr>\n
YTD Change<\/b><\/td>\n-11%<\/td>\n<\/tr>\n
2023E Sales (bil)<\/b><\/td>\n$4.4<\/td>\n<\/tr>\n
2023E Net Income (mil)<\/b><\/td>\n$124<\/td>\n<\/tr>\n
2023E EPS<\/b><\/td>\n$0.67<\/td>\n<\/tr>\n
2023E P\/E<\/b><\/td>\n26.4<\/td>\n<\/tr>\n
Market Value (bil)<\/b><\/td>\n$3.3<\/td>\n<\/tr>\n
Dividend Yield<\/b><\/td>\nNone<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

E=estimate<\/p>\n

Source: FactSet<\/p>\n<\/div><\/div>\n<\/p><\/div>\n

The driving ranges attract both \u201con-\u201d and \u201coff-course\u201d golfers (those who don\u2019t want to venture onto an actual course). They draw in families, too. On a recent Sunday morning at Topgolf\u2019s Edison, N.J., venue, a gaggle of children were hitting shots during a birthday party. A few bays away, two adults were having a great time hitting most of their balls 50 to 100 yards\u2014not far, but no one seemed to care. The average age of an off-course-only golfer is 31, compared with 46 for the on-course cohort, according to the National Golf Foundation. The off-course population also skews more heavily toward women and minorities.<\/p>\n

Topgolf\u2019s second business segment, Golf Equipment, sells clubs and balls, marketed under brands including Callaway, Odyssey, Strata, and the newest: Paradym. <\/p>\n

The third segment, Active Lifestyle, offers apparel, footwear, and golf accessories such as bags, gloves, hats, and other items under the Callaway, JackWolfskin, and TravisMathew brands.<\/p>\n

The quarter\u2019s problem child was the corporate-event business, which accounts for about 20% of the Topgolf unit\u2019s revenue. Same-venue sales growth this year is expected to be in the mid- to high-single digits. Prior guidance was for high-single digit gains.<\/p>\n

That aside, there\u2019s a lot to like about Topgolf Callaway, especially in the longer term. In the quarter, the Carlsbad, Calif., company\u2019s year-over-year same-store sales grew 11% at its ranges. And first-quarter results were aided nicely by the new Paradym brand.<\/p>\n

CEO Chip Brewer cautioned analysts on the quarterly earnings call that the corporate-event business\u2019 woes don\u2019t change the company\u2019s up to $640 million estimate of 2023 earnings before interest, taxes, depreciation, and amortization, or Ebitda. \u201cI don\u2019t want to give you the impression that this just fell off a cliff,\u201d he said.<\/p>\n

Randal Konik, a Jefferies analyst who has a Buy rating on the shares, points out that key parts of the business-event segment remain strong, notably walk-in customers and small-business events.<\/p>\n

Formerly named
\n Callaway Golf
\n and famed for high-end equipment such as its signature Big Bertha drivers, the company in 2021 acquired privately held Topgolf Entertainment Group for about $2.5 billion in an all-stock deal.<\/p>\n

Topgolf now operates about 80 high-tech driving venues around the country, in major markets such as Los Angeles and Philadelphia, and in smaller ones, including Boise, Idaho. It also has a few ranges overseas. The venues, which have a sports-bar feel, feature wraparound couches and raised tables in individual bays where up to six customers can play together.<\/p>\n

Topgolf\u2019s ball-tracing technology quickly reports the length, speed, hang time, height, and curve of every shot on a screen in each bay. There\u2019s a full menu of drinks, comfort food such as nachos and chicken wings, and plenty of TVs airing sports programming.<\/p>\n

The Topgolf buy provided much-needed spice to the company\u2019s growth profile. It has been adding about 11 venues every year in the U.S., most recently in Charleston, S.C., and plans to continue that pace until it hits 250.<\/p>\n

\u201cYou\u2019ve got a very solid golf-equipment business that generates a good amount of cash flow, but at the same time, the growth engine is going to be Topgolf for the next decade-plus,\u201d says Joe Altobello of Raymond James. Although he cut his price target to $30 from $35 recently, he has kept his Outperform rating. That\u2019s based on a blended multiple of 12.5 times projected Ebitda\u201416 times for the faster-growing Topgolf business, and 10 times for the legacy Callaway operations.<\/p>\n

The Topgolf segment\u2019s Ebitda totaled $235 million last year, about 42% of the company\u2019s total. The company has said that it expects that segment to chip in about half of this year\u2019s Ebitda. Brewer told Barron\u2019s <\/em>after the earnings call that he expects that \u201cTopgolf will be the majority of our Ebitda and revenue at some point in the near future.\u201d<\/p>\n

Golf, which struggled in 2000-10, ended a long slide in 2015, measured by rounds played. And it got a big boost in 2020 and 2021, during the worst of the pandemic, since it\u2019s played outdoors and players can easily maintain social distancing. While rounds played in the U.S. were about flat in the first quarter, they\u2019re still well above 2019\u2019s prepandemic level, according to the National Golf Foundation, which won\u2019t divulge specific totals.<\/p>\n

CEO Brewer estimates that the addition of 11 Topgolf venues each year will add three million to four million new off-course golfers to its mix. <\/p>\n

All in all, once it gets out of the bunker it\u2019s currently in, Topgolf stock should land squarely on the green.<\/p>\n

Write to <\/strong>Lawrence C. Strauss at lawrence.strauss@barrons.com<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Fans of Topgolf Callaway Brands, one of the few pure-play golf stocks, think it can deliver the investment equivalent of a hole-in-one. But lately, the performance of its shares has resembled a poorly struck shot into the deep rough. The stock (ticker: MODG) cratered by 13%, to $18.80, on May 10, the day after Topgolf […]<\/p>\n","protected":false},"author":1,"featured_media":8357,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-8356","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nBuy Topgolf Callaway Stock. The Battered Shares Are Worth a Shot. | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Fans of Topgolf Callaway Brands, one of the few pure-play golf stocks, think it can deliver the investment equivalent of a hole-in-one. 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