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Callaway Golf Initiated Buy at Bank of America on Fundamentals

Callaway benefits from 'strong market share in the growing golf equipment market' and 'expected stickiness' among new golfers, Bank of America says.
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Callaway Golf  (ELY) - Get Callaway Golf Company Report shares rose Tuesday after Bank of America initiated coverage of the golf equipment titan with a buy rating and a $45 price target based on fundamentals.

That would give Callaway’s valuation “a slight premium to other leisure brands and experience models,” Analyst Alexander Perry wrote in a commentary.

The rating stems from the following factors:

· “Strong market share in the growing golf equipment market;

· “Expected stickiness among new entrants amid a surge in solitary leisure participation;

· “Aging millennials should drive sustained interest in golf;

· “BofA-aggregated credit and debit card data show consumer spending on golf remains strong;

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· “Potential upside in 2022, driven by new product launches, pricing, and channel refill;”

· A recovery for Callaway’s Topgolf unit ahead of expectations.

Shares of Callaway Golf, Carlsbad, Calif., recently traded up 3% at $30.66. 

As for market share, “overall golf club sales increased 12% in 2020, according to point-of-sale data from Golf Datatech. And they further accelerated in 2021, increasing 46% year to date through Sept. 1,” Perry said.

“Callaway golf club sales increased 8% in 2020 and have accelerated to 41% year to date. Callaway holds the No. 2 market share position in golf clubs year to date, with 24%.

“But we expect Callaway to increase its share in 2022, given expected higher volume Mavrik/Chrome soft launches.”

As for golf-participation stickiness, “the increased demand for socially distanced outdoor recreation activities due to Covid led to the most significant increase in on-course golf participation in 17 years” in 2020, Perry said.

“Off-course participation experienced even faster growth.”

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