Callaway Golf: A lot more than just Big Bertha

Go into a golf proshop and ask to see a "Big Bertha." They will hand you a club that puts you in mind of a breadbox on the end of a stick. Still, the line is a big seller and the Carlsbad, California outfit that created it is one of the most successful in the business.

Callaway Golf Company (NYSE: ELY) is engaged in the design, manufacture, and sale of golf equipment. Products include drivers, fairway woods, hybrids, irons, wedges, putters and balls. The company also sells such accessories as golf bags, golf gloves, golf headwear, golf footwear, golf towels, and golf umbrellas. In addition, Callaway licenses its trademarks to third parties for use on apparel, watches, travel gear and eyewear. The firm markets its products to pro shops, sporting goods retailers and mass merchants.

Callaway had good news for investors earlier in the week, when it said it expected Q1 EPS of 46-48 cents and revenues of $330-335 million. Analysts had been looking for 39 cents and $321.6 million. The CEO attributed the favorable forecast to "improved product development and supply chain processes." Wedbush Morgan subsequently reiterated its "buy" rating on the issue and boosted its price target from $18 to $21.

ELY shares popped into the initial stage of a bullish "flag" consolidation pattern on the news. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Altogether, brokers now recommend the stock with three "strong buys," four "buys," five "holds" and a "sell." Analysts expect a 39% growth rate through the next year. The ELY Price to Sales ratio (1.32), Price to Book ratio (2.33), Sales Growth rate (16.44%) and EPS Growth rate (43.53%) compare favorably with industry, sector and S&P 500 averages.

Institutions own about 88% of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past 52 weeks, it has traded between $11.49 and $18.75. A stop-loss of $15.90 looks good here. Note that the firm is expected to report Q1 results on May 3, after the close.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.