Phil Mickelson and his sponsor, Callaway Golf (NYSE:ELY), have a lot in common. Both have been up and down over the past few years. Mickelson has won the Masters in two of the past three years, and he was on the way to winning the U.S. Open until he double bogeyed the final hole. In a historic collapse, Mickelson managed to hit both a tree and a hospitality tent. Callaway, like Mickelson, has followed success with failure. In 2001, Callaway earned $58.4 million, and the stock was trading as high as $27 per share. However, by 2005, Callaway's earnings fell to $13.3 million and the stock reached a low of $11 per share. Today, it is trading below $13 per share, and the company is now looking to turn things around.

Callaway is one of the premier brands in golf, and the company's sales have held up, even in the face of tough competition from TaylorMade, Nike (NYSE:NKE), and Titleist, which is owned by Fortune Brands (NYSE:FO). The problem is that profit margins have been squeezed. Over the past five years, Callaway's revenue has grown a total of 22% while profits have fallen 77%. To fix this problem, the new CEO, George Fellows, has put the company in full turnaround mode. He has laid out an aggressive plan to save $60 to $70 million through more efficient manufacturing and improved sourcing. On the latest earnings call, he confirmed that the savings program is progressing according to plan, and Callaway should reduce costs by $50 to $60 million in 2006. As a result, Wall Street analysts are predicting earnings of $60 million this year and $85 million in 2007.

In addition to a rebound in earnings, Callaway also has strong cash flow. After estimating about $25 million to $30 million in capital expenses per year, Callaway should generate owner earnings of $65 million in 2006 and $80 million in 2007. For a company with a market cap of $965 million and no long-term debt, that works out to a very attractive free cash flow yield of 6.7% and 8.3%, respectively. And management is giving the cash back to shareholders. A few weeks ago, the company announced a quarterly dividend of $0.07 per share and authorized a $50 million share repurchase program.

If Fellows' turnaround is successful, this stock could be an interesting value play. Investors just need to pay attention to Callaway's $247 million in inventory, which has grown 43% over the past year. Management has attributed rising inventory to the build-up of new products for launch in the second quarter. That may be the truth, but I'll be keeping an eye on it.

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Fool contributor Brendan Mathews played junior hockey in high school and still holds two league records, including most time spent in the penalty box. He welcomes your feedback . Brendan owns shares in Nike. The Fool has a disclosure policy .