Callaway Golf (ELY), mcap=$4bn, price $21.85 vs $22.38

Pitch: Manufacturer of golf equipment/apparel and owner of TopGolf. Legacy equipment business now only 38% of revenues and the main upside comes from TopGolf. The value of TopGolf is obscured as the business was acquired during Covid (at $2.5bn) and investors have limited understanding of the concept. TopGolf has a long growth runaway due to gamified golfing experience. ELY Unit count is projected to increase from 70 today to 400+ at 40% cash on cash returns. CEO has a history of under-promising and over-delivering.

Valuation: ELY trades at 11x 2022 EBITDA. Expected to generate >$2 FCF/share by 2025, mainly driven by 25% CAGR in TopGolf EBITDA. A 5% FCF yield results in $40+/share target or 25% IRR.

Exp. gain: 50% to $40/share in 2-3 years

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