Topgolf Callaway Brands' (MODG) spinoff of its TopGolf business should unlock value but the company's 2025 earnings are likely to remain under pressure due to near-term challenges, Morgan Stanley said in a Thursday note.
According to the investment firm, the near-term challenges include TopGolf's value strategy transition, intense competition in core golf equipment, tepid rounds played year to date, and channel destocking in the apparel business.
Industry fundamentals are favorable over the longer term, with golf participation and demographic growth expected to expand and present an opportunity for same-venue sales to resume growth, said Morgan Stanley.
"We believe the market is ascribing negative value to the TopGolf franchise at this point, and a successful separation should help underscore the underlying value of the Core Golf franchise," according to the investment firm.
Morgan Stanley upgraded Topgolf Callaway Brands to equal-weight from underweight and raised its price target to $9.50 from $6.00.
Price: 9.38, Change: -0.02, Percent Change: -0.21
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