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Home WILL CALLAWAY MAKE A COMEBACK?

The golf equipment industry relies heavily on new product sales each and every year. Callaway Golf (ELY: NYSE) has stated historically half of its revenue base is depended upon the arrival of new products. Perhaps this is why one Wall Street analyst has turned bullish on Big Bertha’s prospects. Rommel Dionisio of Wedbush cited a restocked 2010 product roster and early retail reactions that he believes will lead to market share gains for the company.
“Following our recent conversations with several on-course pro shops, major golf retailers, and sporting goods stores, we came away impressed with the level of optimism among these retailers who were given an early sneak peek at Callaway’s upcoming new products for 2010, which are still several months away from their official unveiling,” Rommel Dionisio of Wedbush wrote to investors in justifying his outperform rating on the company’s shares. “In contrast to enthusiasm for Callaway’s upcoming launches, retailer feedback seemed lukewarm regarding sneak peeks at 2010 intros from competitors, though we note all competitors have yet previewed new models to retailers. In woods, industry leader TaylorMade (ahead of #2 Callaway) does not plan to revamp their successful 2009 line of R9 drivers next year, while their new 2010 wedge model with interchangeable clubface is being considered too gimmicky by retailers we spoke with. Meanwhile, in balls, industry leader Titleist (Callaway is #2 in this category as well) already redesigned their top of the line ProV1 model for 2009, opening the door somewhat for Callaway to regain share in 2010 with their own new ball launch,” he added.
Picking profitable stocks can be a tricky business, but handicapping consumer behavior and selecting successful new product introductions months in advance can be equally challenging. One segment the analyst is quite optimistic about is Callaway’s metal woods business, an area that has been under attack for some time. Through the first six months of 2009, Callaway’s wood sales are down 23% from a year ago, which accounted for a drop of $46.7 million in revenue versus the same time in the prior year. Meanwhile, in 2008, Callaway’s wood business slumped 12% or $37.6 million from 2007. According to the analyst, Callaway is going with a new look leaving behind its square shape found in the FTi and FT-iQ models and going with a triangular version in the yet to be introduced FT-iZ driver. Dionisio says it will be a premium price for the FT-iZ for those wondering. According to one Internet report the driver is expected to debut in the US at $399, while the fairway woods will try and fetch $299 a piece. Retail availability is said to be scheduled for February 2010.
The iZ will get some help from a Diablo Edge/Edge Tour models, according to chatter on the worldwide web. The driver is expected to be priced at the same level as FT-iZ fairway woods. Meanwhile, there will also be a FT Tour, which is currently known on the PGA Tour as “FT9 Tour Hosel.” This model is going to be a stretch for many consumers mot likely regardless of whether the recession makes it desired departure by next year’s selling season. It is expected to demand $499 in the US for those who absolutely feel they have to have it.
Based on the new product launches, which the Wedbush analysts is calling for market share gains leading to higher sales, which he then extrapolates into a stronger bottom line profit, would see an improved stock price. At the time Dionisio issued his report, he called for Callaway shares to move from $7.50 to reach $10 within 12 months.