Barclays downgrades Pearson to 'underweight'

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.

"Our Pearson sum-of-the-parts, capturing extra cashflow costs, points to a 520p price target and on this basis we lower our rating to underweight."