Taylor Made On The Bubble With New Club Golfers Eager To Buy Latest Gear Give A Boost To Industry Innovator
The willingness of many golfers to pay $300 for the newest innovation in equipment, a long-shot driver called the Burner Bubble, is unexpectedly putting pressure on the stocks of the industry leaders, Callaway Golf Co. and Cobra Golf Inc.
Like indecisive golfers fiddling with their clubs, industry analysts are unsure how to play this fight for dominance of the $1.5 billion premium club market.
Some recommend buying Callaway and taking advantage of the weakness in its shares, which ended at $14.87-1/2 on the New York Stock Exchange Friday, down 62.5 cents for the week. That gives the stock a modest multiple of 10 times estimated earnings.
Supportive analysts contend that the stock is being punished unjustifiably by the Bubble Shaft, developed by Taylor Made Golf Co., a unit of Salomon SA, the French ski equipment maker.
The innovation of the Bubble Shaft, a graphite club, is that the weight has been moved from the end of the shaft to the middle. The shift creates a higher club-head speed that produces more distance off the tee.
Cobra ended at $28.75 Friday, down $1.12-1/2 for the week, on NASDAQ. That gave it a multiple of 16 times estimated earnings. Cobra’s stock shot up to $38 in intraday trading Sept. 12, rising on speculation about a takeover by American Brands Inc., which besides other products makes Titleist golf equipment. Callaway has also been the object of American Brands takeover speculation.
Some analysts warn that shares in Callaway and Cobra are poised to fall, foreshadowed by this quarter’s expected slowdown in sales and earnings as some golfers’ loyalties shift to Taylor Made.
“Golfers like what’s new and hot and what’s perceived to make them look better, and that’s Taylor Made,” said Shelly Hale Young, an analyst for Hambrecht & Quist in San Francisco, who quit recommending Callaway and Cobra because of Taylor Made’s ascent. She estimates Taylor Made doubled its market share to 16 percent this year.
Charles J. Yash, Taylor Made’s president and chief executive, said the company’s sales were 50 percent ahead of 1994 revenues, which were $158 million. “We’ve shed our former skin; we’re more broad based,” he said.
Clubs made by Callaway, which had sales of $445 million last year, are the top sellers in the country.
Its Big Bertha woods and irons are made with an oversize head that provides a larger sweet spot, allowing even mediocre players to hit the ball farther than with conventional clubs. This year Callaway introduced Great Big Bertha, a club with a titanium head and shaft of lightweight graphite, priced at $500.
Cobra, whose specialty is shorter-range irons, has its own oversize club, the King Cobra. Cobra is expected to introduce a titanium head club in January, which may be depressing current sales.
Taylor Made, Callaway and Cobra are all based in seaside Carlsbad, Calif., where equipment can be tested year round. The latter two companies are to report third-quarter results in the next few weeks.
Analysts expect Cobra’s earnings to be off modestly and Callaway’s stalled from last year’s levels. For the year, Callaway is expected to earn $1.30, and Cobra $1.82 a share.