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Wall Street bank changes call on Pearson

Published: 23:08 27 Oct 2016 AEDT

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We are not sure Pearson would have scored an excellent on its report card.

‘Could do better’. This was title line of a research note on Pearson PLC (LON:PSON), the educational publisher, which is battling tough trading conditions.

Earlier this month, in its third-quarter update, it unveiled a worse than expected 7% decline in revenues.

The ‘chief culprit’, according to Morgan Stanley, was the company’s higher education business.

Reducing his EBITDA forecasts 1-8% for the years 2017-19, analyst Patrick Wellington took a closer look at his valuation model too.

His target price comes down by £1.50 to £9 a share, while the recommendation moves to ‘equal-weight’ from ‘overweight’ previously.

He does point out the stock, which trades at less than 11 times 2018 earnings per share, yields a very chunky 6.9%.

Of the 17 analysts polled by the Broker Forecasts website, seven have ‘buy’ recommendations on the stock, with the remainder either ‘sellers’ or ‘neutral’.

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