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Callaway Golf Added To 'Alpha List' At Compass Point

MODG | March 6, 2017

Compass Point, which upgraded Callaway Golf Co (NYSE: ELY) to Buy in early February, has now added the stock to its Alpha List, which presents the firm's best short-term, event-driven ideas that are expected to generate near-term alpha.

“We are seeing several factors come together, any one of which might not be compelling enough to make this call, but put together we think we have the evidence necessary,” analyst Casey Alexander wrote in a note.

Expectations For Callaway Golf

Importantly, Alexander expects Callaway Golf to raise FY guidance when they report its first-quarter results in late April, and expects the potential guidance raise could drive the shares more than 20 percent higher from the current price.

“[W]e think ELY has left ample room to beat & raise given that Epic is fast out of the blocks and weather/rounds played are supportive of strong sales and solid re-order patterns,” Alexander continued.

Another catalyst is the potential monetization of Callaway Golf’s 15 percent stake in Topgolf, which indicated that an IPO is unlikely before 2018.

“Since Spring is the optimal time for a golf-related IPO, our sense is that monetization of ELY’s 15 percent stake in Topgolf is likely moving to ‘current asset’ status and will increasingly be seen as a near-term catalyst for ELY shares,” Alexander added.

At last check, shares of Callaway Golf were up 0.58 percent to $10.46. Alexander raised price target to $12.50, implying a potential upside of 19.5 percent from the current levels.