People Are Playing More Golf This Year: Here's Callaway's Market Share Opportunity

Following investor meetings with Callaway Golf Co’s ELY management, D.A. Davidson’s Andrew Burns expressed increased confidence regarding the underlying fundamentals of the golf industry, opportunities for margin expansion and the company’s market share opportunities.

Burns reiterated a Buy rating on Callaway Golf, while raising the price target from $13 to $14.

“Reports of the golf industry's death are greatly exaggerated. Signs of stabilization in golf fundamentals are emerging following the post-recession slowdown,” the analyst mentioned.

Burns went on to say that the avid golf base continues to be stable, with golf rounds playing rising 3 percent year-to-date in 2016.

“When stable participation rates are combined with strong inventory discipline and rational pricing, we believe the environment for top brands is healthy,” the analyst stated.

Related Link: Exclusive: Callaway Golf CFO Talks Nike's Exit And Its Impact On The Business

Market Share Opportunity

The exit of Nike Inc NKE from the golf equipment category presents Callaway Golf with a “small” market share opportunity, while leading to an “important evolution” in the equipment landscape.

“This market share opportunity should be redistributed across top brands within a relatively short period of time, and ELY expects to get its fair share,” Burns pointed out, while adding, “We believe this is a long-term positive for industry dynamics and can ultimately improve ELY's growth prospects and profitability.”

Golf Ball Market Share

In addition, the company’s market share in the golf ball category has improved from 9.5 percent in 2014 to a current run rate of 15 percent, driven by the success of the Chrome Soft ball and the expansion of green grass distribution.

“With these gains, ELY has emerged as the clear #2 market share in the category. Looking forward, the potential to capture NKE's 5.6 percent market share, continued green grass growth, and the success of Chrome Soft altogether position ELY favorably for further share gains,” according to the D.A. Davidson report.

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