Topgolf Callaway Brands, the Consumer Cyclical sector company, was revisited by a Wall Street analyst yesterday. Analyst Arpine Kocharyan from UBS maintained a Hold rating on the stock and has a $10.00 price target.
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Arpine Kocharyan has given his Hold rating due to a combination of factors related to the recent strategic moves by Topgolf Callaway Brands. The company has decided to sell a 60% stake in Topgolf to a private equity firm, Leonard Green, which is expected to generate significant proceeds of $770 million. This transaction is anticipated to reduce the company’s balance sheet obligations, but it also implies a high leverage ratio for the sold entity, which could present risks.
Despite the potential for a cleaner business focus post-transaction, the core business still faces challenges. The core golf segment has shown resilience, yet it needs to demonstrate a higher growth trajectory to justify a valuation above the long-term EV/EBITDA multiple of 11x. Additionally, the company is subject to a two-year lock-up period for its remaining 40% interest in Topgolf, limiting its flexibility. These factors contribute to the Hold rating, as investors are advised to wait for clearer growth signals from the core business before considering a more bullish stance.
According to TipRanks, Kocharyan is a 2-star analyst with an average return of 0.3% and a 50.00% success rate. Kocharyan covers the Consumer Cyclical sector, focusing on stocks such as Vail Resorts, Six Flags Entertainment Corporation, and Topgolf Callaway Brands.
In another report released yesterday, Morgan Stanley also reiterated a Hold rating on the stock with a $11.00 price target.