Callaway Golf drives sales and profits: after rising to success on the strength of its Big Bertha club, Callaway still boasts impressive results

Money Digest, June, 1998

BY GLOBAL SECURITIES

Callaway Golf is the number one manufacturer of golf clubs in the United States, led by its flagship line of Big Bertha drivers. Callaway's Bertha drivers are used by more golf professionals in the five major golf tours than any other driver.

The company also offers irons, putters, clothing, and other golf related accessories carrying the Callaway trademark. The company's sales first soared in 1991 with the introduction of Big Bertha. Capitalizing on the driver's success, Callaway introduced Big Bertha irons in 1994, and the Great Big Bertha driver in 1995.

In 1996 the company set up a golf ball-making subsidiary to begin production in 1999. In 1997 the company bought Odyssey Sports to expand its club line to include the leading putter used on the Senior and Ladies PGA tours.

Analysis and recommendation

Callaway is somewhat risky due to its narrow product line and short operation history. However, it has high return on equity, solid growth and is essentially debt free. Considering the growing popularity of golf and the company's ability to command premium pricing, Callaway Golf is a buy for growth investors.

The above was extracted from a recent research report by Teal Linde from Global Securities Corporation. Phone (604) 689-5400.

[Part 1 of 2]

                           Callaway Golf Company

NYSE Symbol                    ELY          Annual sales
Market cap             US $2.0 bil          Price/earnings trailing
Recent price                $27.00          Price/sales trailing
12 month target price       $35.00          Debt/equity (%)

Income Statement              1997    1996                     1995    1994
Revenue ($mil)                 843     679                      553     449
Net income ($mil)              133     122                       98      78
EPS ($)                       1.94    1.73                     1.40    1.07

Balance Sheet
Long term debt ($mil)            0       0                      2.2     0.6
Common equity ($mil)           475     362                      225     186
Shares o/s (000)            69,362  67,555                   65,612  68,095

Ratios
Profit margin (%)             15.7    18.0                     17.7    17.4
Return on equity (%)          27.9    33.8                     43.4    41.8
Price/earnings ratio          14.3    16.6                     16.2    15.5
Price/sales ratio             2.28    2.86                     2.68    2.51
Book value/share ($)          6.85    5.36                     3.43    2.74

[Part 2 of 2]

                           Callaway Golf Company

NYSE Symbol            US $843 mil
Market cap                      15
Recent price                   2.3
12 month target price            0

Income Statement              1993
Revenue ($mil)                 255
Net income ($mil)               41
EPS ($)                        .60

Balance Sheet
Long term debt ($mil)            0
Common equity ($mil)           117
Shares o/s (000)            67,590

Ratios
Profit margin (%)             16.2
Return on equity (%)          35.3
Price/earnings ratio          22.2
Price/sales ratio             3.54
Book value/share ($)          1.73