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Hole In One For Callaway?


Inside Wall Street

HOLE IN ONE FOR CALLAWAY?

Callaway Golf (ELY) is just one of the 32 growth stocks in the $1.5 billion portfolio of Cohen Klingenstein & Marks, a New York investment firm that focuses on large companies that boast long-term earnings momentum. But, argues Managing Partner George Cohen, it's a stock with added allure: He thinks Nike may go after it.

"Nike wants to be in the sports-equipment business, and it intends to go into a full line of gear for athletes," says Cohen, who does not usually pick stocks for their takeover potential. This time, though, he thinks Callaway--apart from its strong growth qualities--looks appealing to the $10 billion Nike for several reasons.

Callaway, the leading maker of golf gear, has the most endorsement contracts of any company from sports pros, argues Cohen, and this would bolster Nike's own lineup of stars. Callaway's products are "top quality and the best in the business," he adds. In golf clubs and related products, Callaway is bigger than its four closest rivals combined, notes Cohen, whose portfolio owns some $35 million worth of Callaway shares. Equally important: The stock has been in the rough--down to 25 from its high of 38--until recently, that is, when it crept back to 31 3/16, partly because of rumors. Callaway, which posted 1997 earnings of $1.90 a share, is expected to make $2.30 in 1998 and $2.55 in 1999.

Cohen says Callaway is worth 45 in a buyout. "If it's true that Nike's strategy is to buy the premium brand in golf equipment, then Callaway is the one for it," says Cohen. Calls to Callaway weren't returned. A Nike spokeswoman says the company is developing internally the athletic-equipment unit it formed more than a year ago.BY GENE G. MARCIALReturn to top

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