When A Good Company With A Great Brand Meets A Tough Industry

Although Aushnet Holdings Corp GOLF should be able to continue gaining market share, backed by premium brands and leading professional endorsements, it has high leverage to global golf participation, which may not have found a bottom yet, Deutsche Bank’s Bill Schmitz said in a report.

Schmitz initiated coverage of the company with a Hold rating and a price target of $20.

Good Company, Great Brand

Acushnet has two premium brands, Titleist and FootJoy, a “disproportionate concentration of higher margin premium golf balls under the V1 subbrand” as well as industry leading professional endorsements. Schmitz mentioned that these factors should enable the company to continue gaining market share in the global golf equipment and apparel industry, which is valued at $8 billion.

Tough Industry

The analyst commented that sales growth in this industry is highly dependent on a recovery in golf participation and rounds played, adding the it could be “too soon to call the bottom here,” given the absence of favorable weather trends.

The “US is still over-coursed with further supply reductions likely and rounds played have bottomed but aren’t growing materially. Moreover, millennials don’t have the time or money (yet) to embrace the game and the sport lacks a dominant, iconic player (like Tiger Woods) to spur consumption,” Schmitz wrote.

Moreover, oil-based commodity inflation could have an adverse impact on gross margins, especially in the high cost golf balls. Also, demand for custom balls may be under pressure if companies continue to reduce discretionary SG&A spending, the analyst said.

At last check, Acushnet was down 0.89 percent at $18.85.