Shares of Topgolf Callaway Brands Corp. rallied on Monday and Tuesday following the Masters Tournament win by Jon Rahm this weekend as well as a bullish analyst note highlighting healthy tailwinds for the company and the golf industry.
In January 2021, Rahm switched from TaylorMade to join Callaway’s roster of ambassador athletes.
On Monday, Jefferies Randal Konik wrote that the market still undervalues Topgolf Callaway’s transformation into a “preeminent golf entertainment platform.”
“Topgolf is a high-quality asset with scarcity value, enabling MODG to widen its TAM and augment its growth algorithm. Tailwinds to golf remain favorable, and MODG is uniquely positioned to capitalize on the growing interest in the sport,” wrote Konik.
Konik has a “Buy” rating at a target price of $71 on Topgolf Callaway.
On Monday, shares of Topgolf Callaway rose $1.79, or 8.6 percent, to $22.49. On Tuesday, shares added another 80 cents, or 3.7 percent, to $22.51.
Among the factors supporting Konik’s view is that golf is undergoing a “renaissance period” after the pandemic, boosted by its popularity among boomers. Konik estimated that the over 60-year-olds represent nearly half of the annual golf rounds played and a more significant portion of yearly golf equipment spend, while current population projections suggest the number of people aged 70 to 74 is expected to reach 18.8 million by 2035, up from 14.8 million in 2020, the sport has attracting beginners, which the analyst described as a “potential feeder into the traditional sport.”
Konik also said consolidation over the past several years supports a favorable pricing environment for remaining OEMs (original equipment manufacturers), marked by continually improving prices around club launches over the last decade. Konik wrote, “In our view, the consumer has given OEMs permission to continue to push the envelope, in terms of price, so long as there is sufficient innovation to back it.”
Margins are also supported by Callaway’s custom clubs and online fitting programs that lower inventory risk and drive customer conversion.
Outside the Callaway brand, Konik said the Travis Mathew apparel brand is on track to reach $1 billion in revenue “and, in our view, is a hidden gem.”
Konik also believes the market has undervalued the potential of Topgolf, which recently raised its long-term target to 250 venues in the U.S. from 200 due to continued strong trends in off-course play. Konik wrote, “Current levels fail to appreciate the unrivaled access MODG will have to the golf beginner funnel as the result of the merger, as well as the significant runway ahead for Topgolf.”
Photo courtesy Masters Tournament
