Phil Mickelson and his sponsor, Callaway Golf
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
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 .