Shares of Pearson PLC (LON:PSON) have been reevaluated by Kepler, a major financial analysis firm, which has downgraded the stock’s recommendation from Reduce to Hold. Concurrently, Kepler decreased its price target for the company, setting it at 1,000 pence compared to the previous 1,045 pence, indicating an upside potential of roughly 5.5% relative to the current market price of 948 pence.
This adjustment in rating emerges after an intense market reaction to Pearson’s recent Q4 trading statement. The trading update notably revealed emerging headwinds in Pearson’s Assessment & Qualifications division, a sector contributing approximately 60% of the company’s group EBITA. Among the pressures faced, the loss of a key contract with the State of New Jersey, valued at £20 million, is projected to reduce overall group earnings by about 55 basis points for the fiscal year ending 2026.
In response to these developments, Kepler also noted the company’s plan to undertake a £350 million share buyback scheduled for 2026, which factors into the adjusted price target and rating. The analyst firm indicated that the initial market downturn might have been an ‘‘overreaction’’ to the trading news and buyback details.
Updating its financial forecasts, Kepler has increased the projected like-for-like revenue growth for fiscal year 2026 slightly to 3.5%, up from the earlier 3%, while this forecast remains below the consensus estimate of 4.7% preceding the recent trading statement. However, slight downward revisions were applied to adjusted operating margin forecasts, which were trimmed by 10 basis points to 17.1% for FY 2025 and 17.4% for FY 2026.
Although the stock has been upgraded to Hold, Kepler continues to show a superior preference for other professional publishing entities such as RELX, Wolters Kluwer, Informa, and Springer Nature. Particularly, Wolters Kluwer is highlighted for its more attractive valuation, being priced lower than Pearson despite exhibiting organic growth rates 1.5 times higher.
This nuanced repositioning by Kepler reflects an ongoing cautious outlook on Pearson amid upcoming operational challenges, competitive pressures, and a market environment expecting moderate growth in the professional publishing and education sectors.
Kepler has adjusted its stance on Pearson PLC by moving the stock from Reduce to Hold while lowering the price target slightly. This change follows the company’s recent trading update and announcement of a substantial share repurchase plan for 2026, though headwinds are expected in the first half of that year due to contract losses in a core business segment. Kepler’s valuation revisions reflect a cautious but less negative outlook on the UK's education and publishing firm as it navigates operational and competitive challenges.
Key Points
- Kepler upgrades Pearson’s rating from Reduce to Hold while lowering the price target to 1,000 pence, reflecting a modest upside potential.
- Pearson faces first-half 2026 challenges, notably losing a £20 million contract with the State of New Jersey impacting the Assessment & Qualifications division which contributes 60% of group EBITA.
- Kepler forecasts a slight increase in Pearson’s like-for-like revenue growth for FY 2026 to 3.5%, but adjusts operating margin forecasts down marginally.
- Despite the rating upgrade, Kepler favors other peers in professional publishing such as Wolters Kluwer due to their comparatively higher growth and valuation appeal.
Risks
- Loss of significant contracts, exemplified by the £20 million State of New Jersey contract loss, presents operational and financial headwinds for Pearson’s core business segments.
- Pressure on adjusted operating margins with a downward adjustment implies potential profitability concerns going into FY 2025 and FY 2026.
- Market volatility and investor overreaction to earnings updates and share buyback announcements influence short-term stock performance and may cloud medium-term outlooks.