JPMorgan upgrades Pearson, says shares oversold

JPMorgan Cazenove upgraded its stance on education publisher Pearson to ‘overweight’ from ‘neutral’ on Monday, lifting the price target to 960p from 840p as it argued the shares have oversold.

The bank noted that Pearson stock has underperformed the SXXP by around 30% since January despite the company making strategic progress with the launch of Pearson+ and being six months closer to a return to meaningful US Higher Education growth from 2022e.

"A pandemic recovery should underpin forecasts in 2022/23 while net financial cash and sale of some international assets should pave the way for buybacks and targeted M&A," JPM said.

"Pearson offers a free option on the American Families Plan (which could become law in Q4 & drive substantial investment in community colleges), and on workforce skills where Pearson is in advanced talks with several global employers."

JPM noted that Pearson trades on 17x headline earnings per share, or 13x with leverage, and offers five-year EPS growth of around 18%.

The bank cut its 2021/2022 operating profit forecast by 4%/15% to assume a slower recovery but remains above consensus.

At 1040 BST, the shares were up 2.9% at 780p.