On Thursday, B.Riley made a significant adjustment to its stance on Topgolf Callaway Brands Corp. (NYSE: MODG), downgrading the stock from Buy to Neutral. The firm also reduced its price target for the company's shares from $18.00 to $12.00. This shift in rating comes as the company prepares to report its third-quarter results for the year 2024, anticipated in the early to mid-November timeframe.
The analyst from B.Riley provided insight into the rationale behind the downgrade and price target reduction. The forecast for Topgolf Callaway includes an expected split into two independent entities, which is projected to occur in the second half of 2025.
The analyst believes that this separation could unlock shareholder value for the standalone Callaway segment, especially considering the sustained high levels of golf participation following the pandemic and Callaway's strong market shares in various golf-related products.
Despite the potential benefits of the planned corporate separation, there is a concern that the current challenges faced by the Topgolf concept will continue to impact both the consolidated results and the stock price until the split is finalized.
The analyst acknowledged that their previous position on MODG since October 2022 did not align with the market's direction, and with the expectation that the stock will likely not see significant movement until the first half of 2025, B.Riley has decided to step back from an active recommendation.
The revised outlook by B.Riley also includes lowered estimates for the company's performance in 2025. The firm is now taking a more cautious approach, opting to focus on other consumer sector opportunities that may be more suitable for the current market environment.
As the market anticipates Topgolf Callaway's upcoming quarterly report, the downgraded rating and price target reflect a more reserved expectation for the company's near-term stock performance.
In other recent news, Topgolf Callaway Brands has seen a flurry of analyst activity and strategic developments. The company announced plans to separate into two independent entities: Callaway and Topgolf, a process expected to be completed by the second half of 2025. This decision follows a mixed earnings report, with revenues reaching $1.14 billion and an EBITDA of $161 million.
In light of these developments, several analysts adjusted their outlook on Topgolf Callaway. TD Cowen lowered the price target to $10.00 due to concerns over the company's return on capital and increased operating expenses. BofA Securities raised the price target to $14, maintaining a Neutral rating, while Jefferies downgraded the stock from Buy to Hold and reduced the price target to $12.00.
KeyBanc reiterated a Sector Weight rating following the company's announcement of a corporate spin-off. The move aims to unlock value within the company's broader business structure and improve operational focus. Topgolf Callaway also announced a multiyear strategic partnership with Visa (NYSE:V), aiming to enhance the digital experience for customers.
InvestingPro Insights
In light of B.Riley's downgrade of Topgolf Callaway Brands Corp. (NYSE: MODG), recent InvestingPro data provides additional context to the company's financial situation. The company's market capitalization stands at $1.99 billion, with a P/E ratio of 93.39, indicating a high earnings multiple as noted in one of the InvestingPro Tips. This elevated valuation metric aligns with B.Riley's more cautious stance on the stock.
InvestingPro data shows that MODG's revenue for the last twelve months as of Q2 2024 was $4.24 billion, with a modest growth of 1.26%. The company's profitability is evident, with a gross profit of $1.36 billion and an operating income of $229.1 million over the same period. However, an InvestingPro Tip warns that net income is expected to drop this year, which could explain the analyst's concerns about the company's near-term performance.
The stock's recent performance has been volatile, with a significant 9.28% return over the last week, but a substantial decline of 31.19% over the past three months. This volatility, coupled with the 30.89% price drop over the last six months, supports the InvestingPro Tip highlighting the stock's significant price fluctuations.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for MODG, providing a deeper understanding of the company's financial health and market position.
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