Topgolf Callaway (MODG): Can Strategic Reboot Turn EPS Surprise into a Bottomless Buying Opportunity?

Investors looking for value amid market volatility should take note of Topgolf Callaway Brands (MODG). Despite headline revenue declines and a $2.74 billion debt mountain, this company’s Q1 2025 earnings report hides a critical truth: structural shifts, margin discipline, and strategic asset sales could turn this stock’s $7.86 price tag into a steal. Let’s break down why this EPS surprise—paired with bold moves—might just be the catalyst to ignore the Zacks Rank #3 “Hold” and buy now.

The EPS Surprise: A Beacon in the Revenue Fog

The company’s non-GAAP diluted EPS of $0.11 (up 41.7% YoY) is the headline that matters here. While GAAP EPS cratered to $0.01 due to tax headwinds, the operational EPS beat signals a company finally getting its house in order.

Revenue headwinds? Yes—Topgolf’s sales fell 6.9%, and Apparel’s segment (via Jack Wolfskin) is being sold off. But here’s the value investor’s edge: cash flow and EBITDA are rising. Consolidated Adjusted EBITDA jumped 4% to $167.3 million, driven by cost-cutting in golf equipment and Jack Wolfskin. The $20.3 million non-GAAP net income proves management isn’t just surviving—it’s thriving where it counts.

Debt Demons vs. Strategic Exorcisms

The $2.74 billion debt load is daunting, but two moves are neutralizing this risk:
1. Jack Wolfskin Sale: The planned divestiture to ANTA Sports will slash debt and free up $500 million+ in liquidity. This isn’t just a cost-cutting move—it’s a focus play. By shedding non-core apparel, MODG can double down on its experiential crown jewel: Topgolf.
2. Cost Optimization: Golf equipment margins surged 23.8% to $101.6 million thanks to lease renegotiations and operational tweaks. Meanwhile, Topgolf’s “value reset” (e.g., $5 drafts, shorter reservations) is boosting traffic without cratering EBITDA long-term.

The company’s REIT-adjusted net debt dropped 12% YoY to $1.22 billion, proving it’s not just borrowing—it’s paying down.

Margin Pressures? Long-Term Moats Matter More

Critics will cite Topgolf’s projected 6–12% same-venue sales decline and near-term margin drops (100–200 basis points). But here’s why this is a value trap for bears:
- Experiential Moat: Topgolf’s rebrand as a “value-driven premium” experience (think Sunday Funday’s 20% traffic boost) is sticky. These initiatives aren’t just about volume—they’re about locking in repeat customers.
- Spin-Off Upside: Separating Topgolf into an independent entity by year-end will unlock shareholder value. A standalone Topgolf could trade at higher multiples, given its $1.7 billion annual revenue potential.
- EBITDA Guidance Holds: Despite revenue drags, MODG reaffirmed full-year EBITDA guidance. That’s no accident—it’s a signal that cost cuts and foreign exchange tailwinds (40% of sales are non-USD) are offsetting macro pain.

The Contrarian Case: Buy the Dip, Ignore the Zacks

The stock trades at $7.86, nearly half its 52-week high of $16.89. Meanwhile, Zacks’ #3 “Hold” overlooks two critical facts:
1. Undervalued vs. Peers: MODG’s EV/EBITDA of ~6x is a screaming deal compared to experiential peers like AMC (EV/EBITDA ~25x) or Dave & Buster’s (EV/EBITDA ~12x).
2. Debt Paydown Momentum: The $50 million Term Loan B paydown and planned asset sales mean leverage ratios are trending down—not up.

Final Verdict: Buy Now—This Is a Structural Turnaround

The EPS surprise isn’t a fluke—it’s the first chapter of a turnaround. MODG is executing a ruthless strategy:
- Kill the deadwood (Jack Wolfskin).
- Double down on winners (Topgolf’s repositioning).
- Pay down debt with surgical precision.

Sure, macro risks linger—Topgolf’s corporate event revenue dropped 13%, and tariffs are a $25 million thorn. But at current prices, the stock’s price-to-sales ratio of 0.4x and dividend yield of 2.1% (if reinstated) make this a compelling “buy the dip” opportunity.

Action Item: Aggressively buy MODG at $7.86. The structural repositioning, EBITDA resilience, and spin-off upside make this a rare value play in a pricey market.

Disclosure: This analysis is for informational purposes only. Always consult with a financial advisor before making investment decisions.