Here's How Callaway Is Winning From Its Topgolf Investment

D.A. Davidson's Andrew Burns upgraded the rating on Callaway Golf Co (NYSE: ELY) to Buy, while raising the price target from $10 to $12.

"Coinciding with Providence Equity Partners acquiring a minority stake in Topgolf, ELY announced it will be participating in a Topgolf repurchase program," Burns mentioned.

Callaway Golf has agreed to sell 9.6-10.9 percent of its stake in Topgolf, which will lower the company's ownership percentage from 18.5 percent to 14.6 percent.

Callaway Golf is expected to generate gains work $17.4-$19.7 million from the sale, with its total investment in Topgolf being reduced to $48.2-$48.9 million.

"ELY's total Topgolf investment prior to this transaction was $54.6 million. This transaction will represent a ~306 percent gain on ELY's investment, which, if extrapolated to ELY's remaining Topgolf investment, would value its remaining Topgolf ownership at ~$197 million, or ~$2.08/share," according to the D.A. Davidson report.

In the meantime, Burns stated that the company's core business continues to be robust, with the revised estimates expected to be achievable.

"Based on current product momentum heading into the upcoming golf season, we see potential for upward guidance revisions," Burns added.