On Monday, CFRA made an adjustment to the price target for shares of Pearson PLC (LON:PSON) (NYSE: PSO), raising it to $11.00 from the previous $10.00, while continuing to recommend a Sell rating on the stock. The revision reflects a price-to-earnings (P/E) ratio of 15 times for the year 2024, which aligns with Pearson's five-year average forward P/E ratio. Despite the price target increase, CFRA maintains a cautious stance on the company's prospects.
The firm has kept its 2024 earnings per share (EPS) estimate for Pearson at £0.60 and has introduced a new estimate of £0.70 for the year 2025. Pearson's first quarter of 2024 showed a 3% growth in underlying sales when excluding the OPM and Strategic Review businesses.
This growth was particularly evident in the English Language Learning and Assessment & Qualifications segments, which expanded by 22% and 2%, respectively.
Pearson has indicated that it is on track to meet its 2024 guidance, with expectations for growth to accelerate in the latter half of the year. This anticipated increase is attributed to expansion in the Higher Education sector and a return to normalcy in assessment business comparators.
Still, CFRA foresees a challenging year ahead for Pearson, especially within its Virtual Learning segment. The segment witnessed a decline in the first quarter of 2024, primarily due to a downturn in the OPM business.
The analysis by CFRA suggests that while some areas of Pearson's operations are showing positive growth, the overall outlook for 2024 remains difficult, particularly due to the underperformance of the Virtual Learning segment. Despite the raised price target, the firm's Sell rating indicates continued concerns over Pearson's future performance.
InvestingPro Insights
With CFRA revising Pearson PLC's (NYSE: PSO) price target amidst an overall cautious outlook, current and potential investors may benefit from additional insights. According to InvestingPro data, Pearson's market capitalization stands at $8.16 billion, and it trades at a P/E ratio of 18.06, suggesting a reasonable valuation when compared to its near-term earnings growth.
Notably, the company's P/E ratio has adjusted to 17.01 over the last twelve months as of Q4 2023, and it boasts a low PEG ratio of 0.28 during the same period, indicating that the stock could be undervalued relative to its earnings growth.
InvestingPro Tips highlight that Pearson has demonstrated a commitment to shareholder returns, having raised its dividend for 5 consecutive years and maintaining dividend payments for 33 consecutive years. This is complemented by a dividend yield of 3.22% as of mid-April 2024, which is competitive in today's market. Moreover, the company's liquid assets exceed short-term obligations, and it operates with a moderate level of debt, which could provide financial stability and flexibility.
For investors seeking a deeper analysis, there are 7 additional InvestingPro Tips available for Pearson, offering insights that could help in making a more informed investment decision. To explore these tips and gain a comprehensive understanding of Pearson's financial health and future prospects, visit https://www.investing.com/pro/PSO. Remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a wealth of expert financial analysis and data.
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