Wunderlich Very Bullish On Callaway's OGIO Acquisition

Callaway Golf Co ELY announced the acquisition of OGIO International in an all-cash transaction. The acquisition broadens Callaway’s product platform in accessories and apparel, and it is expected to be earnings accretive from 2018, Wunderlich’s Rommel Dionisio said in a report.

Dionisio maintains a Buy rating on the company, with a price target of $15. With a total purchase price of $75.5 million, the transaction multiple of the OGIO acquisition seems reasonable.

Accretive In 2018

Management expects OGIO to add $45 million in sales in 2017. Following the integration of OGIO, the business is expected to be accretive to EBITDA by ~$10 million when operational synergies are realized within a couple of years.

“The acquisition expands Callaway’s presence in the golf bag, apparel, and accessories market as well as expands the product portfolio into other lifestyle and sports-related categories [...] Though management expects the transaction to be dilutive a few pennies in 2017, following the complete integration of the business, OGIO is expected to be accretive in 2018 and beyond,” Dionisio wrote.

Big Bertha Buzz

Callaway’s major upcoming driver for 2017, the Great Big Bertha Epic, has already generated a lot of preseason buzz among retailers of new golf product for this season, the analyst mentioned.

The Epic line would feature three models, one of which is expected to be used by Rory McIlroy, despite there being no endorsement contract. The world's No. 2 player would be switching away from Nike Inc NKE, given the company’s recent exit from golf equipment, Dionisio noted.