Deutsche Bank upgraded Pearson on Tuesday to ‘buy’ from ‘hold’ and hiked the price target to 900p from 625p as it said the educational publisher was “turning over a new leaf”.
“After a period of decline driven by structural issues in the US courseware market, we think Pearson is now back on the path to sustainable growth as it recaptures the second-hand textbook market and innovates its offering,” DB said.
“The journey has been -painful with several years of restructuring, but with the strategy tangibly progressing we turn more constructive.”
The bank expects a 5% group revenue compound annual growth rate over 2021-25E and operating margins to expand from 11% to 15%.
It noted that despite the company’s return to growth, the shares trade on 17x 2022E consensus price-to-earnings, at a discount to its two-year trading average and peers.
Pearson offers a dividend yield of around 3% and a buyback yield of around 4.5%, it said.
At 1040 BST, the shares were up 1.5% at 783.60p.