Societe Generale upgrades Pearson to 'buy'

Societe Generale has upgraded Pearson’s stock from ‘hold’ to ‘buy’ and maintained its price target of 1,030p, noting an upside of 37%.

“Pearson shares are down 25% from their July peak despite FX tailwinds and reiterated targets. We think the current share price offers a compelling low-risk/high-reward profile,” said the analysts.

The bank upgraded its estimated earnings per share for 2016 an 2017 by 3% and 5% respectively to 57.92p from 56.46p and to 71.21p from 67.87p which is 7% and 12% above consensus.

The analysts feel the group’s management will push the company to achieve its goals for 2018. After meeting with the chief financial officer Coram Williams, the analysts found he had a "high level of conviction” that the company's business analysis, surveys, deep dives and resulting targets are right.

"The CEO and CFO will more than triple their basic pay if they meet their On-Target goals, which broadly align with delivery of the £800m EBITA 2018e scenario."

The bank also believes US college enrollment will experience positive growth in 2017-18.

The rating places Pearson as the bank’s preferred stock in the sector replacing RELX after its strong run over the past three years.

Pearson shares were up 2.96% to 764p at 0936 GMT.