Raymond James downgrades Topgolf Callaway Brands. Here's why

Raymond James analysts have downgraded Topgolf Callaway Brands (MODG) stock from Outperform to Underperform, believing Callaway Golf Company to have made a mistake in acquiring driving range chain Topgolf in its 2021 merger.

Julie Hyman and Alexandra Canal explain the details of the analyst note

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This post was written by Luke Carberry Mogan.

Video Transcript

Let's also talk about Raymond James, which is downgrading top golf G Callaway brands from outperform to underperform to a two step downgrade.

Here, the stock is down only about 1% but the note does highlight the recent deterioration in same venue sales at top golf.

Basically, he says, it was a bad idea for Callaway to buy top golf.

I mean, what I mean, like effectively.

That's what it boils down to here.

If you do a TL uh, too long to read right on On this note, Um, he talks about that, uh, the company's, uh, rival.

A cush net, which is still a pure play golf gear company, has vastly outperformed this company because they didn't go out and buy a venue.

Now this is a, um, an acquisition that initially looked good because top golf was performing really well.

But as we have seen this sort of post pandemic revenge, activity and travel bump fade a little bit.

Top golf has been a victim of that.

It's expensive to go there, and he argues, he argues that, you know, um, you it's hard to be a regular at something that costs that much right, so he's no fan.

Yeah, that is my biggest thing.

I don't know if you have a lot of repeat customers.

You know, it's a fun thing to do.

Once I've went once.

Have I ever gone again?

No.

And to your point about how they thought they were getting a good deal.

I mean, they purchased it in March 2021 evaluation of 2.6 billion.

And you know, pre covid top golf was potentially eyeing an IP O.

They had a potential valuation of 4 billion so really fast fall from grace here they have tried to invigorate themselves with new loyalty programmes, new games, fitting rooms, upgrades, et cetera.

But that, of course, ups the cost.

It's about 100 and $55 to reserve one day for two hours, and that's before food and drink and the food and drink.

It's expensive there.

Yeah, He also points out that the company has talked about now spinning off top golf.

But he says, we fear that it might be too late, so we'll keep watching to see what it's wing and a miss.

There.

I had to get at least one golf done in there