Academic publisher Pearson (PSON) is among the top risers on a buoyant FTSE 100, up 4.4% to 796.5p, thanks to a bullish note from Morgan Stanley.
Analysts at the investment bank rate the stock at 'overweight' with a £10.50 price target. They argue the stock is pricing in a profit warning, an event which it reckons is unlikely. With the shares down 25% from their highs, trading on a 2018 PE of 10 and offering a free cash flow yield of 10% it think the shares 'could recover sharply' when it posts third quarter results (not yet scheduled but expected later this month).
Pearson has suffered from a structural decline in the market for academic textbooks and a more pessimistic view is provided by long-term bear of the stock Ian Whittaker at Liberum.
In his most recent note, published on 26 September Whittaker reiterated his 'sell' recommendation and 470p price target. In August he outlined the key factors behind his negative stance.
'Pearson continues to be our Top Sell as they face a combination of both structural and cyclical headwinds that we anticipate will persist. The North American business (67% of FY'16E group profits) is under pressure as enrolment trends continue to deteriorate and are expected to continue in this vein for the next 12-24 months.'
