Shares of Topgolf Callaway Brands (MODG +1.98%) rallied as much as 18.3% on Thursday, before settling in to a 12.6% gain as of 11:35 a.m. EDT.
Topgolf Callaway is having a big bounce off its lows following a terrible year. During 2024, its stock fell 46%, as revenue stalled and profits fell, with its Topgolf entertainment segment posting severely negative same-store sales.
In September, the company announced it would be undoing the merger between Callaway and Topgolf that occurred in March 2021, essentially admitting the acquisition was a mistake.
But 2025 is a new year, and Topgolf Callaway is rallying today on the back of a bullish analyst call.
NYSE: MODG
Key Data Points
Comeback kid or dead cat bounce?
On Thursday, Jefferies sell-side analyst David Katz upgraded Callaway from hold to buy while giving the stock a $13 price target, compared with a $7.86 price to start the day.
Katz believes that the market isn't properly valuing Callaway based on the sum of its parts, which could be realized once the spinoff occurs, likely in late 2025.
To arrive at his price target, Katz uses a valuation on fiscal 2026 estimates and compares each segment with their nearest comparable companies. For stand-alone Callaway, Katz compares it to Acushnet Holdings, which owns the Titleist and FootJoy golf brands. For Topgolf, Katz compares it with Dave & Buster's.
For Callaway, Katz uses a multiple of 11 for enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) -- a discount to the current 14.5 multiple for Acushnet -- and a multiple of 7 for Topgolf, a discount to the current 9 multiple for Dave & Buster's.
That works out to a blended EV/EBITDA multiple of 9 for today's Topgolf Callaway. Katz then applied that multiple to his projected 2026 combined EBITDA estimate of $541 million, yielding a $13 price target.
Lots of uncertainty
It's quite possible that Topgolf Callaway merely fell to just too low of a valuation amid its admittedly worrying results. Although the $541 million EBITDA estimates seems conservative, since the company just guided for 2024 EBITDA of $565 million, there is obviously a lot of uncertainty two years out. After all, adjusted EBITDA just fell 26.6% last quarter, which is quite the plunge.
It could just be that Topgolf's and Callaway's businesses are having a bad year after a surge of golf activity during and immediately following the pandemic, but it could also be a sign of deeper problems.
Investors should remain cautious with this situation, but for deep-value investors, the Topgolf Callaway spinoff could be an intriguing one to investigate further over the course of this year.
