Analyst Simeon Gutman of Morgan Stanley maintained a Hold rating on Topgolf Callaway Brands, with a price target of $11.00.
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Simeon Gutman has given his Hold rating due to a combination of factors surrounding the recent transaction involving Topgolf Callaway Brands. The sale of a 60% stake in Topgolf to Leonard Green & Partners, valued at approximately $1.1 billion, underscores operational improvements but falls short of a full separation, which was anticipated by investors. This partial separation means that RemainCo will retain a 40% stake in Topgolf for at least two years, delaying the potential re-rating of its valuation.
Furthermore, while the transaction highlights the standalone value of Topgolf, the market’s valuation of RemainCo’s other brands remains at a discount compared to their fair value. This discount is attributed to the continued involvement with Topgolf, which carries significant liabilities. Although these liabilities will not be consolidated in RemainCo’s balance sheet post-transaction, the ongoing equity stake means a continued connection between the businesses. As a result, despite improved profitability and cash flows at Topgolf, the lack of a complete separation limits the visibility into its performance, justifying the Hold rating.
In another report released on November 11, J.P. Morgan also maintained a Hold rating on the stock with a $10.00 price target.