Callaway Surges As Nike Joins Adidas In Exit From Golf Equipment

Shares of Callaway Golf  (ELY) are rising after its sportswear and equipment giant Nike  (NKE) announced that it will transition out of the golf club, ball and bag business to focus on footwear and apparel. In May, Adidas  (ADDYY) , another competitor of Callaway, had said it was actively seeking a buyer for its golf brands TaylorMade, Adams and Ashworth.

NIKE OUT OF GOLF EQUIPMENT: Nike has announced that it will transition out of golf equipment, including clubs, balls and bags. According to the company's press release, Nike will "accelerate innovation in its Golf footwear and apparel business and will partner with more of the world's best golfers." Nike is not the only name announcing its golf equipment departure. During its first quarter earnings call in May, Adidas said it will be focusing its efforts in golf footwear and apparel and was, therefore, actively seeking a buyer for the hard goods part of its golf business, more precisely, for TaylorMade and Adams, as well as a leisure lifestyle offering of the Ashworth brand. "We decided that now is the time to focus even more on our core strengths in the athletic footwear and the apparel market. The planned divestiture will allow us to reduce complexity and focus our efforts on those areas of our business that offer the highest return," said Herbert Hainer, CEO of the company. Adidas, which reported its highest second quarter sales growth in a decade this morning, said on the company's associated call that it was confident that the group could keep growing fast and improve profitability. Adidas reported a rise in sales and margins at the golf business it is trying to sell and Hainer said the company is in talks with several parties interested in the business.

OPPORTUNITY FOR CALLAWAY: In a research note to investors this morning, Jefferies analyst Randal Konik said that Nike's plans to exit the golf club, ball, and bag business, combined with the sale of TaylorMade from Adidas, is a "major share gain opportunity" for Callaway and should help accelerate the company's recent momentum. While Callaway is already the U.S. market share leader in overall clubs, it is second in drivers and woods behind Adidas' TaylorMade, which presents opportunity during this transition period, the analyst contended. Konik pointed out that he continues to view Callaway's stock as attractive, given an improving market backdrop, continued share gains opportunities, and the still largely unrealized value in the company's 15% stake in TopGolf. He reiterated a Buy rating and $14 price target on Callaway's shares.

PRICE ACTION: In morning trading, shares of Callaway advanced about 6.6% to $11.28, while Nike rose 0.5% and Adidas shares trading in New York slipped 0.4%.

Reporting by Jessica de Sa-Mota.

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