Topgolf Callaway is heading back to $34, Roth says

Roth Capital Partners analyst George Kelly is staying bullish on Topgolf Callaway Brands (Topgolf Callaway Brands Stock Quote, Charts, News, Analysts, Financials NYSE:MODG), saying in a Friday report that the tech-enabled golf company is set to benefit from launching a new inventory and reservation management system.

Topgolf Callaway Brands makes and sells golf equipment and apparel and operates Topgolf, a chain of golf entertainment venues. The company recently hosted an investor event led by Topgolf CEO Artie Starrs, with Kelly coming away from the event feeling positive on the company and stock.

One focus of the event was the company’s hitting bay inventory and reservation management system, PIE, which is currently generating a two per cent sales lift at venues where it’s being implemented (36 venues as of Q1 2023).

Commenting on the system, Kelly wrote, “MODG remains on track to rollout the system in all units by YE23. As we discuss below, it will be an important tool in managing price, bay utilization, and customer experience. Following full implementation, management expects to unlock additional functionality over time (that we expect to continue driving comp growth).”

Kelly noted that hitting by utilization has grown to almost 80 per cent during weekend peak hours, which is up from the low-70s as of last April. He said management is now shooting for the upper 80 per cent range, once venues are fully staffed and improvements related to PIE have come into effect.

MODG’s share price is down by about half over the past two years, but Kelly sees a return to form over upcoming months. The analyst reiterated a “Buy” rating on the stock and 12-month target price of $34.00 per share, which at press time represented a projected return of 95 per cent.

On the financials, Kelly thinks MODG will generate full 2023 revenue and EBITDA of $4.454 billion and $632.2 million, respectively, and 2024 revenue and EBITDA of $4.777 billion and $712.5 million, respectively.

“We see potential for MODG to re-rate as the market builds confidence in MODG’s FY25 targets, and as MODG’s leverage ratio and net debt stabilize,” Kelly said.