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Investing.com - Morgan Stanley (NYSE:MS) initiated coverage on Topgolf Callaway Brands (NYSE:MODG) with an Equalweight rating and a $9.50 price target on Friday. According to InvestingPro data, this target aligns with the current analyst consensus range of $7.00 to $10.50, while the stock currently trades at $9.40, suggesting limited upside potential.
The investment firm views MODG as a "premier golf equipment and active lifestyle franchise" that has been affected by high leverage and underperformance at its TopGolf division. Morgan Stanley believes the market currently assigns negative or no value to TopGolf, suggesting a successful separation could unlock value in the core franchise. InvestingPro analysis shows the company’s debt-to-equity ratio stands at 1.83, while maintaining a healthy current ratio of 2.12, indicating sufficient liquidity despite leverage concerns.
For the core business excluding TopGolf, Morgan Stanley forecasts approximately 1.5% annual revenue growth over the 2025-2027 period, compared to consensus estimates of flat growth. The firm projects ex-TopGolf adjusted EBITDA to decline by about 20% in 2025 due to competitive pressures, ongoing destocking in apparel/footwear, and tariff impacts.
Morgan Stanley expects a recovery in adjusted EBITDA of 17% in 2026 and 10% in 2027, which exceeds consensus projections of 13% and 4% respectively. The firm’s sum-of-the-parts valuation suggests the core MODG business trades at less than 10x EV/EBITDA, representing approximately a 20% discount to competitor Acushnet.
The investment bank noted it would become more bullish on MODG if TopGolf shows an inflection in same-venue traffic following its new value positioning, or if there are signs of margin improvement through cost efficiency gains. InvestingPro reveals several key challenges ahead, with 5 analysts revising earnings downward for the upcoming period and expectations of continued sales decline this year. Subscribers can access the comprehensive Pro Research Report for deeper insights into MODG’s valuation and growth prospects.
In other recent news, Topgolf Callaway Brands reported a strong performance in their Q1 2025 earnings, surprising investors with an earnings per share (EPS) of $0.11, significantly beating the forecasted loss of -$0.04. The company’s revenue met expectations at $1.09 billion, despite marking a 5% decrease year-over-year. The financial report also highlighted a projected $25 million impact from tariffs, offset by a $45 million foreign exchange benefit. KeyBanc Capital Markets maintained a Sector Weight rating on the stock, noting mixed guidance but recognizing potential value in the company’s ongoing business separation efforts. Meanwhile, CFRA raised its price target for Topgolf Callaway Brands to $9.00 from $7.00, citing troughing fundamentals, but maintained a Hold rating due to uncertainties around the spin-off and manufacturing exposure to Asia. Texas Capital Securities initiated coverage with a Hold rating and an $8.00 price target, acknowledging growth opportunities but cautioning about potential pressures on same-venue sales. Additionally, Topgolf Callaway Brands shareholders approved an amended incentive plan, increasing available shares for issuance, and re-elected directors during their annual meeting.
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