Cowen Raises Callaway Price Target, Says Topgolf Stake Could Be Worth Over $600M

Excitement around golf is on the upswing after Tiger Woods' comeback at the Tour Championship last week to close out the PGA Tour season.

Callaway Golf Co ELY may be reaping the benefits of a golf resurgence, particularly due to its Topgolf investment, according to Cowen. 

The Analyst

Cowen’s John Kernan maintained a Market Perform rating on Callaway and raised the price target from $21 to $24.

The Thesis

While the golf equipment industry is a low-growth industry, rounds played — a key indicator of the sport’s health —  have increased in each of the last two years, and the industry is in its healthiest inventory position in a decade, Kernan said in a Friday note. (See his track record here.)

The real catalyst for Callaway lies in its 14-percent stake in fast-growing golf entertainment venue Topgolf, the analyst said. The analyst is modeling for Topgolf to expand to 80-100 locations.

Topgolf could reach roughly $1.8 billion in sales by 2020, up from $500 million in 2016, Kernan said. The franchise could be worth as much as $6 billion to $7 billion, he said, adding that he sees Callaway’s stake in Topgolf as being worth about $600 million by 2020.

Callaway initially invested $54 million in Topgolf and sold a 3.5-percent stake to Providence Capital Partners in 2016, returning roughly half of its initial investment.

“We believe Topgolf could come close to $1.8 billion in sales in 2020. Assuming exit EV/EBITDA multiples in the range of 11x to 13x, the Topgolf franchise could be worth as much as $6 billion to $7 billion,” Kernan said.

“This valuation is based on our analysis of the concept’s current productivity including average unit sales and sector EBITDA margins." 

Price Action

Callaway shares were up 0.62 percent at $24.29 at the close Friday. 

Related Links:

Callaway's Stake In TopGolf Nearly Doubles In A Year, Now Worth $400 Million

Tiger Woods Still Has 'Halo Effect' On TV Ratings

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