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Here's How To Play Your Active Lifestyle In The Market

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Callaway Golf Company NYSE:ELY, Fox Factory Holding Corp. NASDAQ:FOXF - Here's How To Play Your Active Lifestyle In The Market

The Active Lifestyle Industry has been beset by a number of challenges. DA Davidson’s Andrew Burns said the number of bankruptcy filings year to date highlight the “multitude of headwinds” that sporting goods retailers are currently facing.

“These headwinds include online sales migration, brand DTC encroachment, minimal participation growth and over-stored markets,” Burns wrote. He added that companies would need to take “a fresh look at their go to market strategy.”

Surviving The Storm

Companies would need to focus on product innovation, compelling marketing, solid execution and strong relationships with consumers in order to meet the challenges. Burns expects companies like Callaway Golf Co ELY 0.11%, Fox Factory Holding Corp FOXF 0.06% and Nautilus, Inc. NLS 0.06% to be able to survive the storm by launching innovative products and gaining market share.

Related Link: Death Of Golf As An Investment? Kerrisdale Capital Shorts ClubCorp, Sees 80% Downside

“On the bright side, FX headwinds have slightly moderated since the start of the year, providing a small but much needed tailwind for the group,” the analyst mentioned.

DA Davidson has Buy ratings for Callaway, Fox Factory and Nautilus, with price targets of $12, $22 and $26, respectively. Burns said company-specific growth drivers make these names the “top equipment ideas into 1Q earnings season.”

Golf Stabilizing

Following a difficult period, gold seems to be stabilizing. Imperial Capital’s George Kelly initiated coverage of the company with an Outperform rating and a price target of $12. The analyst commented that the brand’s turnaround had been clouded by macro factors.

The last couple of years have been tough for golf companies, with limited participation and spending. To add to their woes, forex rates plunged in 2014 and 2015, adversely impacting 50 percent of Callaway’s business. These two factors clouded “what has been a turnaround in the brand, with major gains in market share and profitability,” analyst George Kelly said.

He expects Callaway’s turnaround to become more evident in the coming years. Moreover, the company has a robust balance sheet and other assets, which offers added upside potential.

Topgolf: Continued Execution

Topgolf has been growing rapidly and has plans of adding 10-23 locations annually. Expansion plans could be accelerated by a recent finding round from Providence Equity Partners, Kelly said. Topgolf would be inaugurating a flagship 70mm location in Las Vegas later this year.

The analyst added that Callaway has a 15 percent stake in Topgolf, and aggressive expansion plans would boost the value of the investment.

Mar 2016Imperial CapitalInitiates Coverage onOutperform
Jan 2016Ladenburg ThalmannInitiates Coverage onBuy
Jun 2015Bank of AmericaUpgradesNeutralBuy

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