JPMorgan reinstates Pearson at 'overweight', highlights defensive qualities

JPMorgan Cazenove reinstated its ‘overweight’ rating on Pearson on Thursday, highlighting the education publisher’s defensive qualities.

Following the end of a restriction relating to the sale of assets in Italy and Germany, the bank reinstated the rating, with a 1,010p price target. JPM said it believes that Pearson is "walking the walk" and is making good progress on delivering on its strategy.

The bank said Pearson is no 1 ranked in MediaScreen, its quant-based overlay that applies the style cycle to the media sector.

"Its defensive qualities, low risk, good quality and strong earnings momentum suggest that it has the attributes for further outperformance during the current contraction phase of the cycle," JPM said.

It argued that Pearson is well placed to weather a likely macro slowdown, noting that the majority of its revenues - around 60% - are non-discretionary or based on longer-term contracts with states/governments and should be defensive.

JPM also said the company’s portfolio can deliver mid-single digit organic growth. "Assessment and Qualifications is a high quality business offering low to mid-single digit growth and is based on longer term contracts," it said.

"English language learning is seeing structural growth and PTE is benefiting from re-opening post the pandemic, wider adoption, and increased demand for international education and work-related immigration."

In addition, JPM said the virtual schools segment is seeing structural growth for remote learning and the pandemic has raised awareness and broadened its acceptance.

At 1105 BST, the shares were up 1.3% at 873.60p.