JPMorgan Cazenove has upgraded its rating for Pearson PLC (LON:PSON) to ‘overweight’ from ‘neutral’ after raising earnings estimates sharply on the back of stronger higher education growth and better operational gearing.
The US bank also raised its target price for the FTSE 100-listed firm to 1,050p, up from 850p previously, with the shares currently trading at 839.40p, up 0.5% on Thursday’s close.
READ: Pearson expects sales to stabilise this year before growing again in 2020 as it posts in-line 2018 profit
In a note to clients, JPMorgan’s analysts pointed out that 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.
They said: “We expect top-line growth to accelerate from -1% in 2018 to +3% in 2022 driven by US Higher Education & structural growth activities that represent 36% of revenues.
The analysts have upgraded their longer-term forecasts for Pearson’s underlying earnings (EBIT) by 25%-30% as a result of stronger higher education growth and better operational gearing.
They said they see further upside from a normalisation of US unemployment.
The JPMorgan analysts concluded by noting that Pearson trades on 13x 2020 EPS estimates at which point the group will offer three year EPS growth of around 7%, a 2% yield and an unleveraged balance sheet.