Jim Cramer Reviewed 22 Stocks, Including Home Depot and Caterpillar, After the Relief Rally

12. Callaway Golf Company (NYSE:CALY)

Callaway Golf Company (NYSE:CALY) is among the stocks Jim Cramer reviewed while discussing the Iran ceasefire that triggered a relief rally. Cramer discussed the company’s breakup and buyback during the episode, as he remarked:

I’ve gotta admit that I was too negative on the old Topgolf Callaway, which is now simply known as Callaway Golf… A year ago, I said that I’d take a fresh look at Callaway as a value play once its breakup was complete. But it turns out the market didn’t need to wait. Callaway’s stock started running last summer, even before we knew exactly what the Topgolf breakup would look like, in part because the company managed to put up a series of better-than-expected numbers. Finally, last November, Topgolf Callaway announced it would sell 60% of its stake in the Topgolf driving range business, along with Toptracer, its golf technology business, to a private equity firm called Leonard Green for $1 billion. The structure of the deal was clever.

First, the sale of the majority stake in Topgolf and Toptracer was cleaner than a spinoff, as it could happen much faster. Second, the sale to a private equity firm took the process of valuing Topgolf out of the public’s hands. When Topgolf Callaway was at its lows earlier last year, the market was effectively assigning no value to the Topgolf business, none, which public investors had totally written off. But the sale to Leonard Green valued Topgolf at roughly $1 billion and also assigned some value to Toptracer, too. Previously, that business was simply buried within the broader Topgolf Callaway businesses.

Third, Callaway kept 40% of Topgolf, which is worth something now that we know that the private equity was willing to pay for it. In early January, they completed the sale, and the remaining company changed its name back to Callaway Golf Company. Management also announced a $200 million buyback, which represented nearly 10% of the market cap at the time. And over the course of the next two weeks, investors, they just piled right back into Callaway, which climbed from below $12 to a high of $16 and change in late January. It’s since pulled back to $14 and change, where it sells for 34 times this year’s earnings estimates. I don’t know about that.

Callaway Golf Company (NYSE:CALY) manufactures and sells golf clubs, balls, and equipment, as well as lifestyle apparel and gear, under several brands.