Shares of Topgolf Callaway Brands (MODG, Financial) saw a significant boost, rising by 11.45%. This rally is attributed to an upgrade from Jefferies analyst David Katz, suggesting a market undervaluation and a potential price target increase.
Topgolf Callaway Brands Corp (MODG, Financial) is currently trading at $8.76 per share. The company, primarily recognized for its modern golf and lifestyle offerings, has faced a challenging year with shares declining due to stagnant revenues and decreasing profits in its Topgolf segment. The company announced a strategic move to reverse its merger decision between Callaway and Topgolf, expressing that the acquisition might not have been the most advantageous move.
Analyst David Katz upgraded the stock from a hold to a buy, increasing the price target from $7.86 to $13. Katz suggests this valuation reflects the market's undervaluation of the company's assets. He projects the value realization post-spinoff, anticipated by late 2025, aligning the stand-alone Callaway with Acushnet Holdings and Topgolf with Dave & Buster's. Katz bases his evaluation on fiscal 2026 estimates, applying an EV/EBITDA multiple of 11 for Callaway and 7 for Topgolf, resulting in a combined EV/EBITDA multiple of 9.
Financially, Topgolf Callaway Brands has been experiencing some challenges, including a 0.95 Altman Z-score indicating financial distress and a declining operating margin at an average rate of -6.6% over five years. Furthermore, the company has been issuing new debt, with $877.4 million raised over the past three years. Despite these challenges, the stock's GF Value is assessed at $21.92, suggesting the potential for growth. Additionally, the stock is close to its 10-year lows in both price and price-to-book ratio, possibly offering an attractive entry point for investors. For more details on its GF Value, visit the GF Value page.
With a market capitalization of $1.61 billion, Topgolf Callaway Brands currently trades at a price-to-book ratio of 0.41 and holds an enterprise value (EV) of $4 billion. Its EV/EBITDA is at 8.89, while the interest coverage ratio stands at 0.83, indicating potential issues in covering interest expenses. Despite some financial pressures, the company is not regarded as a financial manipulator, with a Beneish M-Score of -2.73.
Topgolf Callaway's current strategy focuses on unlocking value from its distinct business segments after its spinoff, with a potential parallel valuation with companies like Acushnet and Dave & Buster's. Investors and analysts alike are watching closely to see how this plays into future growth and profitability.
