On Tuesday, JPMorgan increased the price target on Pearson PLC (LON:PSON) shares to GBP14.50, up from the previous GBP14.00, while maintaining an Overweight rating on the stock. The revision comes ahead of Pearson's trading update scheduled for Thursday, where the company is expected to confirm its progress in meeting market expectations for the fiscal year.
According to InvestingPro data, Pearson's stock is currently trading near its 52-week high, with a market capitalization of $10.29 billion and showing strong momentum over the past six months with a 19.17% return.
Pearson, a global education company, is anticipated to reiterate its forecast for approximately 3.0% organic growth and an operating profit around £595 million for the fiscal year, as per Bloomberg consensus estimates. Although explicit guidance for 2025 is not likely to be provided until the fiscal year-end report, the company is expected to remain on course to achieve mid-single digit organic growth over the three years leading up to 2025.
This forecast suggests a minimum of 4% organic growth in 2025. InvestingPro analysis shows the company maintains a strong financial health score, with liquid assets exceeding short-term obligations and operating with moderate debt levels.
The analyst predicts that Pearson's growth will accelerate, driven by its US Higher Education, Workforce Skills, and Virtual Schools segments. In light of the recent strength of the dollar, JPMorgan has also raised its forecast for Pearson's full-year earnings per share (EPS) by 5%.
JPMorgan notes that Pearson's stock is currently trading at 17 times its estimated earnings for 2025, which is expected to decrease to 14.4 times by 2026. The company's net debt to EBITDA ratio, including leases, is projected to be only 0.5 times by the end of this year. This strong financial position could enable Pearson to pursue accretive bolt-on acquisitions or share buybacks.
If the company were to leverage up to 2 times, it would trade at less than 13 times earnings in 2026, with mid single-digit organic growth and double-digit earnings growth. InvestingPro subscribers can access additional insights, including 11 more ProTips and detailed valuation metrics that help assess Pearson's investment potential.
In other recent news, Pearson's financial prospects have been positively adjusted by CFRA, upgrading the rating from Sell to Hold, reflecting a more optimistic outlook based on the company's recent performance and strategic initiatives. Pearson reported a 5% increase in underlying sales growth in the third quarter, with all divisions performing well except OPM and Strategic Review businesses. The Higher Education sector notably returned to growth with a 4% sales increase, a result of operational and business changes implemented over the past 18 months.
The company's financial stability is supported by the recent completion of a GBP 500 million share buyback program and a GBP 350 million bond issuance. Looking forward, CFRA anticipates that expansion in the Higher Education sector will be a key driver for Pearson's growth. Barclays (LON:BARC) maintained its Equalweight rating on Pearson, following a reported 5% organic growth for the third quarter, surpassing their forecast of 3% growth.
UBS and Citi also expressed confidence in Pearson's growth, raising their price targets, reflecting the company's positive first-half results and consistent EBIT guidance for fiscal year 2024. Despite some divisions falling short of expectations, Pearson's overall performance aligns with projections, and the company confirmed that its full-year guidance remains unchanged. These are the recent developments in Pearson's performance and outlook.
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