Callaway Golf Co. (NYSE: ELY) has evolved over time from a manufacturer of golf clubs to one of the leading manufacturers and distributors of a full line of golf equipment and accessories. It designs, manufactures and sells high quality golf clubs, golf balls, golf bags and other golf-related accessories. Callaway designs its products to be technologically advanced and invests a considerable amount in research and development each year.
Jefferies feels that Callaway is poised for a very powerful comeback, and the company posted very solid third-quarter numbers. Calloway revolutionized the oversized driver with the Big Bertha over 20 years ago, and the analysts are predicting strong market share gains and margin improvements driven by the strong product line.
Another key and somewhat hidden asset is Callaway’s minority ownership in TopGolf International, which Jefferies feels the market is severely undervaluing today. In fact, Jefferies believes the ownership stake in TopGolf could be worth as much as $3 to $5 per share on a standalone basis.
The $16 Jefferies price target is higher than the consensus target of $12.42. The stock closed Thursday at $9.71.
This company reported very solid numbers but shares are down huge over the past week, dropping 30% since the Dell-EMC deal was announced. VMware Inc. (NYSE: VMW) is a global leader in cloud infrastructure and business mobility. Its industry-leading virtualization technology solutions deliver a brave new model of IT that is fluid, instant and more secure. Customers can innovate faster by rapidly developing, automatically delivering and more safely consuming any application. With 2014 revenues of $6 billion, VMware has more than 500,000 customers and 75,000 partners.
VMware is adding enterprise license agreements at a furious pace, and cloud management tools are now 16% penetrated into the customer base, with plenty of room to grow. The bottom line is that this company is still very strong, and the stock still is trading almost 50% below highs printed in April of 2014.
Of course the big issue is how many of the company’s shares will hit the tape as a result of the Dell deal with EMC, which has been a concern even before the deal surfaced. Jefferies feels that VMware will continue to trade at a discount to intrinsic value because of the overhang, but the firm sees big upside to the stock from current trading levels. In fact, with the big drop recently, the stock is now trading at levels the analysts assign to the value of its existing maintenance stream.
The Jefferies price target is $83. The consensus target is $77.71. Shares closed Thursday at $56.79.
There is always a degree of risk with the fallen angels, and while not all these companies are in that category per se, they all have traded down to levels where investor upside is substantial. These stocks are only suitable for aggressive growth accounts.
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