Topgolf Callaway Brands (NYSE:MODG) has been upgraded to a ‘Buy’ rating from ‘Hold’ by analysts at Jefferies who see the golf equipment and entertainment brand’s shares as undervalued.
Analysts also raised their price target on the company to $13 from $11. Shares of Topgolf moved higher on Friday morning, adding 1.6% at $9.14.
Their sum-of-the-parts (SOTP) valuation indicates Callaway is priced at a discount to its peer Acushnet Holdings Corp (GOLF) despite stronger three-year growth of 5.6%, compared to GOLF’s 5.2%.
Callaway shares have fallen almost 33% in the last year, while GOLF added almost 18% over the same period.
The analysts’ valuation assigns minimal value to Topgolf, Callaway’s venue-based golf entertainment business.
“Topgolf remains a problem. Despite positive trends at core Callaway, investors have focused on the same-store sales growth of the acquired Topgolf, which is projected to be down a low double-digit percentage this year,” they wrote.
“This deceleration, even against easier comparisons, confirms concerns around execution missteps. Consequently, Topgolf, once seen as a promising asymmetric upside opportunity, has become a source of asymmetric downside overshadowing the health of Callaway.”
Analysts see Callaway’s spinoff of Topgolf, expected to be completed in the second half of 2025, as an opportunity to unlock value.
They project Topgolf could generate $264 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and Callaway to deliver $278 million.
Despite including Topgolf’s deemed landlord financing (DLF) obligations in the valuation for caution, analysts see significant upside potential if the market adopts management’s view of excluding DLF obligations from net debt calculations.
Further, Jefferies expects Callaway to thrive as the golf industry continues to experience strong growth.
“Despite recent management doubts, history shows a deep understanding of golf equipment and tailwinds in golf are robust,” they wrote.
Their updated SOTP valuation assigns a blended multiple of 9x the fiscal 2026 adjusted EBITDA of $541 million, with Callaway valued at 11x and Topgolf at 7x, reflecting discounts relative to peers GOLF and Dave & Buster’s Entertainment (PLAY).
“The math says ‘Buy,’” the analysts concluded.
