Topgolf Callaway Brands (NYSE: MODG) and Acushnet Holdings (NYSE: GOLF) stock prices have diverged in 2023. While GOLF shares have jumped by 35% this year, Callaway’s stock is down by almost 30%. As shown below, the two stocks have literally moved in the exact opposite direction this year. This article will explore the better option between the two golfing giants.
Callaway vs Acushnet
Callaway Golf downfallFor a long time, Callaway was the biggest player in the golfing industry. It solidified this situation when it acquired Topgolf, a virtual golf entertainment operator in a $2 billion deal. Since then, the stock surged initially and then erased most of those gains. Today, the combined company is valued at $2.2 billion.
Callaway’s challenge is that its business is not growing as fast as expected. In the most recent quarter, the company said that its net revenue rose to over $1 billion, a 5.3% YoY change. Its net income dropped to $29.7 million. A closer look at its performance is that Topgolf is not growing as its same-venue sales dropped. In a statement, the CEO said:
“With current same venue sales trends and foreign exchange rates, we are lowering our forward guidance and taking decisive action to lower both costs as well as capital expenditures and to drive additional synergies across our business.”
In all, Callaway’s Topgolf revenue rose by 8.2% to $447 million while golf equipment sales dropped by 1.1%. Active lifestyle revenue rose by 7.7%.
The company’s stock has dropped because of the underperformance of its Topgolf brand and the fact that it is highly leveraged. Its short-term borrowings stood at over $78 million in the last quarter while long-term debt stood at over $1.5 billion. These figures means that the company has a net leverage to EBITDA of 4. The real number is more complicated because of its lease agreements.
Callaway stock price has also plunged as analysts have downgraded the company. Analysts at JPMorgan and Stephens downgraded the stock. In a note, Stephens wrote:
“We continue to believe that Topgolf is undervalued within Topgolf Callaway Brands today, but with softer near-term expectations we don’t see a near-term catalyst for unlocking value.”
The view among analysts is that Callaway would do much better by focusing on its golf equipment business, where it has a leading market share.
Watch here: https://www.youtube.com/embed/7dgo1nOyhBs?feature=oembedAcushnet continuing riseAcushnet, the parent company of Titleist, Vokey, FootJoy, Scotty Cameron, and Pinnacle, has done well, helped by its strong performance. The company’s recent results showed that its revenue rose by 6.29% to $593 million, beating estimates by $25 million.
Its performance was driven by strong sales of golf balls, clubs and FootJoy golf wear. Its adjusted EBITDA rose by 14.2% while its gross profit jumped by 4.6% to $309 million.
It also has a better balance sheet with a net leverage ratio of 1.6 times. Additionally, it is also rewarding its shareholders through a combination of $205 million in share repurchases and $40 million in dividends. It also maintained its forward guidance but reduced its EBITDA guidance.
Acushnet vs Callaway: better buy?Now, with Acushnet and Callaway moving in the opposite direction, which is a better buy? As illustrated, it is clear that investors don’t believe in Callaway’s ambition of creating a golfing entertainment company. They are also worried about its huge debt load.
However, I believe that the Callaway stock price is quite cheap, which could push it higher in the long term. For one, it owns some quality brands in the golf industry that will continue thriving over time. A sum of parts view is also favourable, especially if it decides to spin off or sell its Topgolf locations. As such, I suspect that it will outperform Acushnet in 2024.
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