Pearson not good value as new CEO will have big turnaround job, says Barclays
This week’s nine-month update showed revenue down 14% from where it was a year ago, but this was broadly in line with expectations and so the bank’s full-year profit forecasts are unchanged.
Yet the analysts said they were downgrading their rating on Pearson to ‘underweight’ from ‘equal weight’ based on three factors.
First is that the analysts have cut their earnings per share forecast for next year by 8%, leaving us 13% below the City consensus.
On top of that, they see further risks to EPS next year “from new investment or aggressive pricing from the new CEO, who starts on Monday, and we think it is tough to turn this business around fast”.
Furthermore, the analysts said they “do not believe Pearson’s valuation puts it in the value category”, with the shares trading on 16.4 times 2021 earnings and 14.8 times those forecast for 2022.
Using a sum-of-the-parts valuation methodology, Barclays has a 520p price target, which drives the new rating.