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Has the penny dropped? Pearson tipped to rally thanks to ‘dollar earner’ status

Last updated: 06:48 18 Oct 2016 BST, First published: 09:56 17 Oct 2016 BST

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Can Pearson get a move on?

“The penny has dropped.” Whether or not the pun was intended technical analyst Zak Mir has summed up the situation nicely for those trading Pearson Plc (LON:PSON).

Mir, in a Tip TV segment for Proactive Investors, highlighted that the former owner of the FT has moved to focus on the ‘less understandable’ education business in the United States.

“That didn’t look like a particularly inspiring idea, until perhaps after the referendum result – and the dollar earners have become the darlings of the stock market – and that is why, as we speak, the company has been able to raise expectations on its earnings.”

Looking at the chart, Mir says: “the technicals are just starting to recover.”

“I’m really expecting the shares to head higher to the top of the range over the next few months.”

Noting positive technical indicators, Mir says Pearson shares should rise to between 900p and 1000p.

No profit warning but Pearson has to cut costs hard to stay on track

The educational publisher is pulling out all the stops on the cost-savings front to stay on course to meet full-year expectations.

Customers have been running down high stock levels, the company warned, and this has been hitting sales, which were down 7% year-on-year in underlying terms in the first nine months of the year, unchanged from the performance level at the half-way point of the year.

Sales declined 3% in headline terms, due to the strength of the dollar against sterling, but were off 10% on a constant exchange rates basis. Morgan Stanley had forecast headline sales to decline by 5% year-on-year, versus a decline of 5% at the halfway stage.

The company said it would stick by its 2016 guidance figures, even though its markets have been challenging, with sales in the North American Higher Education courseware business trending lower than management’s expectations.

The group said it continues to expect to report full-year adjusted earnings per share (EPS) before restructuring costs of between 50p and 55p, but if current exchange rate levels persist then a boost of around 4.5p could be expected to EPS.

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