Excerpts from Gilford Securities analyst Casey Alexander's recent note to clients on Callaway Golf (ELY):
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6. Raising Our Rating to a Buy from a Hold
The beauty of Callaway Golf is that the shares will probably hit our price target whether the Company actually hits our EPS forecast or not. That is the nature of the seasonal trade. There are several ‘What ifs?’ that could lead to a share price well in excess of our price target. Such as, ‘What if the consumer recovery begins in 2009?’ or ‘What if the pent up demand actually leads to a bounce back year for golf equipment?’ or ‘What if Callaway Golf actually get some respect that leads to actual P/E multiple expansion?’ or ‘What if Callaway Golf gets an offer to go private?’ We could go on, but you get the point.
On the numbers, Callaway is very cheap. Are there issues? There are always issues. But we are at the point on the calendar that we have to start to look past the issues and start to become constructive on building positions in Callaway, before the rest of the world gets excited about golf in the spring.
Our price target is $17.50, up 35% from the current price. This is based upon Callaway maintaining a P/E multiple of 60% of the expected EPS growth rate. This target is also justifiable based upon the average annual return if the seasonal trade in Callaway Golf. Therefore we are raising our rating to Buy from Hold, and we recognize that there could be substantial upside to our stated price objective.
Risks to Achieving Price Target
- Failure of new products to resonate with target customers
- Failure of golf equipment sales to stabilize domestically
- Severe deterioration of general economic conditions both domestically and internationally
- Failure to control costs and deliver expected margin improvements
I, Casey Alexander, certify that all the views expressed in this research report accurately reflect my personal views of the subject company (ies). I also certify that I have not and will not receive compensation with respect to the issuance of this report.