Acushnet's Brands Are Strong, But Margin Risk Remains

Imperial Capital’s George Kelly noted that while Acushnet Holdings Corp (NYSE: GOLF) has good brands and the golf environment is improving, there continues to be margin risk and limited upside to the stock valuation.

Kelly initiated coverage on the company with an In-Line rating and price target of $20.

Strong Brands

“We are positive on the industry and retail environment and we believe GOLF’s brand portfolio and financial model are strong compared to peers, but we see limited upside given potential margin headwinds, which keeps us on the sidelines,” the analyst explained.

Kelly pointed out that golf participation metrics had been improved, and the retail environment had become stable following an expansion/retrenchment cycle.

Noting that retail pricing and inventory levels “are in good condition as we enter the 2017 season,” the analyst stated that Acushnet Holdings owns “several leading brands in golf, including Titleist, FootJoy, Pinnacle, Vokey, and Scotty Cameron.”

The company’s mix of durables and consumables help drive more stable free cash flows, as compared to other sporting equipment companies.

Margin Risk

However, Kelly believes that Acushnet Holdings’ margin profile had downside risk.

“The ball segment, which has accounted for much of the recent margin gains, could be pressured from unfavorable recent changes in FX and commodity pricing,” the analyst mentioned, while pointing out that margins were close to their historical peak.