Broker tips: Pearson, easyJet, Bunzl

Barclays downgraded its stance on education publisher Pearson to ‘underweight’ from ‘equalweight’ on Thursday, cutting the price target to 520p from 570p as it pointed to multiple risks to 2021 forecasts.

The bank said Pearson’s nine-month update this week was broadly in line with its expectations and that its 2020 profits are unchanged.

However, it has decided to downgrade as it lowers its 2021 earnings per share estimate by 8%, leaving it 13% below Bloomberg consensus pre-results.

Barclays said it sees further risks to 2021 EPS estimates from new investment or aggressive pricing from the new chief executive, who starts on Monday, and reckons it will be tough to turn this business around fast.

"We do not believe Pearson’s valuation puts it in the value category, trading on 16.4x 2021E price-to-earnings ratio and 14.8x 2022 estimates," it said.

Broker Liberum cut its price target on hold-rated easyJet to 500p from 600p on Thursday as it said the short-term outlook is toughening, with tightening Covid-19 restrictions.

"EasyJet has moderated its capacity growth plans for Q1 (December), while retaining flexibility to match capacity to available demand," Liberum said.

The broker said it was cutting its forecasts to match management’s short-term guidance and to incorporate its assumption of a slower restoration of capacity.

For the current year, it cut its forecasts to reflect management’s guidance, for a headline pre-tax loss between £815m and £845m. Relative to the broker’s previous forecasts, revenue was better but costs worse than it had assumed. For later years, it assumes a more gradual recovery in capacity.

"The seasonally weaker winter period is always challenging for easyJet," Liberum said. "Demand is softer than in the summer and the period is usually lossmaking for the airline. This year, easyJet faces the additional challenges for Covid restrictions on both society as a whole and on international travel in particular."

Deutsche Bank upped its price target on shares of distribution and services group Bunzl to 2,971p from 2,175p on Thursday following the company’s third-quarter update a day earlier.

The bank said it was lifting 2020 earnings per share estimates by 22% and 2021 by 12% after the update.

"This is largely due to continuing strength in Covid-19 related protection items, as well as announced M&A and a limited recovery in its other business," it said.

"We continue to take a cautious view as to how 2021 will play out (most likely a decline in large Covid-19 orders but conversely a potential recovery in other sectors) but we believe that Bunzl has shown the resilient of its business model and its strength via diversity of end customers and markets.

"This is not to say that there are no risks but more that at the moment the risks appear under control."