Is Callaway Now the One Golf Stock That Every Golfer Should Own?

By Lee Jackson Published Apr 22, 10:55AM EDT

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After years of faltering interest, it seems that the appeal in golf is picking up again. Viewership of the 2015 Masters tournament was even up 26% this year. After years of declining golf trends, more affordable in-town destinations might set the trend to bring in more young golfers in the years ahead.

In a report issued earlier this week, the analysts at Jefferies have latched on to a top golf equipment stock — Callaway Golf Co. (NYSE: ELY). The firm issued a Buy rating, but what stands out is that Jefferies has a $16 price target. This would imply upside of more than 60%, if the firm is correct. That put Jefferies as the highest analyst price target, and well above the consensus price target of $11.38 (and the median target is $10.00). Jefferies sees a hidden asset here that may even drive special situation investors to the company.

While this call is longer term and not just around earnings, note that earnings are due to be released on Thursday, April 23. That means that investors who do not like volatility may want to reconsider this call after the report, rather than jumping into an unknown immediate event.

For those who play and love golf, from the 25 handicap to the scratch golfer, equipment is the name of the game. The companies that make the top equipment stand to benefit as interest in the game picks up again. In fact, saying that golf trends had been slow might be words of kindness.

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Callaway Golf has evolved over time from a manufacturer of golf clubs to one of the leading manufacturers and distributors of a full line of golf equipment and accessories. The company designs, manufactures and sells high-quality golf clubs, golf balls, golf bags and other golf-related accessories. Callaway designs its products to be technologically advanced and invests a considerable amount in research and development each year.

Plain and simple, the Jefferies analysts feel that Callaway is poised for a very powerful comeback. From the company that revolutionized the oversized driver with the Big Bertha over 20 years ago, the analysts are predicting strong market share gains, as well as margin improvements driven by the strong product line.

The somewhat hidden asset in Callaway’s long-term value is its minority ownership in TopGolf International. Jefferies feels the market is severely undervaluing this asset, and it even feels that the ownership stake in TopGolf could be worth as much as $3 to $5 per share on a standalone basis. TopGolf International is a sports entertainment facility headquartered in Dallas, Texas, with locations throughout the United States and England, and it is growing hyper-fast. TopGolf may also be one of the top drivers rekindling interest in golf with younger players.

TopGolf features a golf game that uses microchip technology inside golf balls that are shot into several targets with real clubs to score points. Players tee off from a driving bay onto a landscaped outfield with targets ranging in distance from 20 to 250 yards. Players receive instant feedback on how far they have hit a shot and are allocated points based on distance and accuracy. It has fun and challenging games for golfers of all skill levels. They also offer food and drinks and have a huge aggressive expansion plan underway.

Again, investors who do not like event-risk might want to consider this a longer-term view. Jefferies seems to be highlighting the long-term potential here after years of subdued share performance.

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About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.