On Tuesday, UBS raised the price target for Pearson PLC (LON:PSON:LN) (NYSE: PSO) shares to GBP12.00 from GBP11.30 while maintaining a Buy rating on the stock. The revision reflects confidence in the company's performance and future prospects.
Pearson's first-half results have been seen as positive, with the company holding steady on its EBIT guidance for the fiscal year 2024 despite encountering headwinds in organic growth.
The education company observed a slowdown in organic growth in its Assessments & Qualifications, English, and Workforce Skills segments when compared to the second half of 2023. However, it has not adjusted its financial forecasts downward.
The firm's analysts have grown increasingly confident in Pearson's potential to achieve growth in its Higher Education division in 2024. This optimism is based on several factors, including anticipated price increases for digital courseware products, double-digit growth in revenues from Advanced Placement programs, which account for around 20% of the segment's revenues, and an uptick in adoption share. Additionally, management has indicated that delays in the Free Application for Federal Student Aid (FAFSA) process are not expected to materially affect student enrollments.
Despite a 10% year-over-year decline in unit sales of the Pearson Test of English in the first half of the year, due to regulatory changes, the impact was less severe than the broader market, which saw a 16% decrease. Strength in other English language products like Versant and Mondly has allowed Pearson to maintain its guidance for high single-digit growth.
In other recent news, Pearson PLC has been the focus of analysts' attention. Citi maintained a Buy rating for Pearson, expressing confidence in the company's trajectory towards organic growth and higher margins. The financial services firm increased Pearson's price target to GBP11.90, reflecting optimism about the company's future performance.
Simultaneously, CFRA maintained a Sell rating on Pearson's shares, despite raising the stock's price target to $11.00. The firm maintains a cautious stance on the company's prospects, particularly within its Virtual Learning segment.
These developments come after Pearson reported a 3% growth in underlying sales in the first quarter of 2024, primarily driven by expansion in the English Language Learning and Assessment & Qualifications segments. The company is on track to meet its 2024 guidance, with growth expected to accelerate in the latter half of the year, largely due to expansion in the Higher Education sector.
However, Pearson's Virtual Learning segment witnessed a decline, resulting in a challenging outlook for the company. Both Citi and CFRA's analysis highlight the contrasting views of analysts on Pearson's future performance.
InvestingPro Insights
As Pearson PLC (NYSE: PSO) continues to navigate the dynamic educational sector, real-time data and expert analysis from InvestingPro offer valuable insights into the company's financial health and stock performance. With a market capitalization of $8.92 billion and a relatively stable P/E ratio of 19.44 for the last twelve months as of Q2 2024, Pearson presents an interesting case for investors. The company's commitment to shareholder returns is evident with a significant dividend growth of 161.22% over the same period and a current dividend yield of 2.94%.
One of the notable InvestingPro Tips for Pearson is its record of raising dividends for 5 consecutive years, demonstrating a reliable return to investors. Additionally, the stock is trading at a low P/E ratio relative to near-term earnings growth, suggesting a potential undervaluation that savvy investors may find appealing. With liquid assets surpassing short-term obligations and a moderate level of debt, Pearson's financial stability is a reassuring factor for investors considering the stock.
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