JPMorgan upgrades Pearson on return to higher education growth

JPMorgan Cazenove upped its rating on shares of education publisher Pearson on Friday as to 'overweight' from 'neutral' and hiked the price target to 1,050p from 850p, citing a return to higher education growth and a better business model.

JPM said Pearson is moving to a better business model as it migrates from print to digital, from ownership to access and to a simplified and scalable platform for growth. It said the shift from ownership to access and direct to consumer allows the group to deliver better learning outcomes at a reduced cost to students.

The bank expects top-line growth to accelerate from -1% in 2018 to 3% in 2022 thanks to the US higher education business and structural growth activities that represent 36% of revenues.

JPM lifted its longer-term EBIT estimates by 25-30% as a result of stronger higher education growth and better operational gearing.

It pointed out that Pearson trades on 13x 2020 earnings per share, at which point it will offer three-year EPS growth of around 7%, a 2% yield and an unlevered balance sheet.

JPM also said it sees further upside from a normalisation of US unemployment.

At 0950 GMT, the shares were up 0.5% to 839p.