Why Did Raymond James Downgrade Callaway Golf?

Callaway Golf Co ELY reported its first quarter financial results on Thursday. While the company beat net income expectations, it missed revenue estimates. Following the announcement, analysts at Raymond James downgraded the stock from Strong Buy to Market Perform and removed their previous price target of $9.50, mainly to reflect its premium valuation.

Despite the downgrade, the firm boosted its 2015 EPS estimate above the management’s guidance of $0.04. They now expect EPS of $0.13, up from a previous projection of $0.00, on revenue of $848 million.  For 2016, they model EPS of $0.23, down from $0.44, on revenue of $901 million.

According to a report issued Friday, Raymond James analysts consider “the market is finally recognizing the success Callaway Golf is achieving in rebuilding its market share and leveraging these gains into potentially higher EBIT%.” In addition, they think that the company has “finally received recognition that its investment in Top Golf is one of the most exciting privately owned companies in the consumer sector.”

Callaway Golf’s stock price has climbed 30 percent year-to-date, and, while the long-term outlook remains “exciting (…) the valuation for its share price is no longer a bargain, the note explains.