Jana Partners (Trades, Portfolio) disclosed last week it reduced its holding of Callaway Golf Co. (ELY, Financial) by over 15% according to GuruFocus Real-Time Picks, a Premium feature.
Founded in 2001 by Barry Rosenstein, the New York-based firm applies a fundamental value discipline to identify undervalued companies that have one or more specific catalysts to unlock value.
The firm has not released its fourth-quarter portfolio report as the deadline is 45 days after the quarter ends. As of the third quarter, Jana Partners (Trades, Portfolio)’ $1.24 billion equity portfolio contains 10 holdings, with over 30% portfolio weight in both consumer cyclical and consumer defensive.
Transaction details
On Jan. 9, Jana disclosed in a Schedule 13-D/A filing that it owned 7,293,268 shares of Callaway, down 15.9% from the previous stake of 8,671,810 shares. According to GuruFocus estimates, Jana Partners has gained an estimated 32.70% on the stock since its initial purchase during the second quarter of 2019.
Company background
The Carlsbad, California-based company manufactures golf equipment through two business segments: golf equipment and gear, accessories and other. The golf equipment segment includes Callaway’s golf club and golf ball products, which include brands like Big Bertha, Callaway Golf and Odyssey putters.
Callaway operates in the travel and leisure industry, which is part of the consumer cyclical sector. As such, the company’s earnings results are sensitive to changes in the economic cycle: During market downturns, consumers are less likely to purchase brand-name golf equipment than during strong markets. Additionally, the golfing industry is subject to seasonal fluctuations: While sales of golf clubs and golf balls might be high during major golf tournaments like the PGA Championship and the British Open, sales of golf equipment might be low during the cold-weather months.
Profitability overview
GuruFocus ranks Callaway’s profitability 4 out of 10 on the heels of operating margins underperforming 52.73% of global competitors. Gross margins during the first nine months of 2019 declined 2.10% from the prior-year period, driven by unfavorable changes in foreign currency rates and a shift in product mix to premium but low-margin products.
Financial strength overview
While Callaway’s financial strength ranks 5 out of 10, GuruFocus warns that the company’s long-term debt has increased by over $578 million over the past three years, leading to interest coverage and debt ratios that underperform over 64% of global competitors.
See also
As of September 2019, Jana’s top holdings include Callaway, Conagra Brands Inc. (CAG, Financial), Bloomin' Brands Inc. (BLMN, Financial) and Axalta Coating Systems Ltd. (AXTA, Financial).
Other gurus with holdings in Callaway include Pioneer Investments (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Chuck Royce (Trades, Portfolio).
Disclosure: No positions.
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