Pearson slumps after double downgrade by UBS

UBS downgraded its recommendation on education publisher Pearson on Monday to ‘sell’ from ‘buy’ and cut the price target to 730p from 741p, noting the stock is up around 60% in the last three months and trading at 19x the bank’s FY22 earnings per share estimates.

"We think this multiple will be hard to sustain once technical market issues abate. Therefore, we would need to see material earnings upgrades for shares to perform which while possible, is not our base case," it said.

"Given the current valuation we are now increasingly concerned that Pearson’s FY20 results on 5th March could be a negative catalyst for the stock."

UBS said that given the continued impact on some of Pearson’s businesses from Covid-19, and the prospect of new investment to build a D2C learning platform, it expects the guidance range for 2021E EBIT to be below consensus forecasts at £350m-£450m, versus consensus of £415m and UBS’ forecast of £397m.

"Our medium-term view that Pearson can generate good EBIT growth as Covid pressures abate, digital courseware grows, and Pearson increases its exposure to remote learning trends is unchanged," it said.

At 1545 GMT, the shares were down 5.1% at 771.20p.