Pearson boosted by Exane upgrade to 'outperform'

Education publisher Pearson got a boost on Wednesday as Exane BNP Paribas upgraded the stock to 'outperform' from 'underperform' and lifted the price target to 700p from 600p.

It said US higher education has been the main driver of Pearson's de-rating. "While there are still challenges ahead, the recent turn in the group's strategy and potential positive newsflow with Q34 results should help the shares to recover."

The bank highlighted positive signals in US higher education, with the college publishing market returning to stability during the key summer selling seasons. It argued that more disciplined bookstore ordering along with the publishers' push against counterfeit textbooks may have helped. "This bodes well for Q3 results."

In the longer term, Exane reckons Pearson still has to prove its strategy can lead to a sustainable return to growth. However, it said the company is making good progress.

"The pending sales of K12 courseware, Wall Street English and GEDU reduce the group's exposure to Open Education Resources threat and to competition from online language platform. Its group simplification, cost-cutting efforts and technology upgrades are well on track, in our view."

The bank lifted its US higher education organic revenue growth forecast from -7% to 0% for FY17 on the back of a strong third quarter. Consensus is at -7%.

At 1440 BST, the shares were up 4.5% to 609.50p.