Investing.com -- UBS downgraded education company Pearson to "neutral" from "buy" because its shares, up about 18% so far this year, now fairly reflect the company's growth outlook. UBS kept its price target at 1,300 pence.
Pearson trades at 16.3 times expected 2027 adjusted earnings, versus 15.5 times for publishing peers, whose shares have fallen 8% on average this year, UBS said. It forecasts Pearson's annual earnings per share growth at 12% between 2027 and 2029, against 11% for peers.
UBS said Pearson's operations are still performing well, but it sees a less certain path for events that could lift the shares. It said most of the outlook is already built into analysts' consensus forecasts.
UBS left its forecasts unchanged. For 2026, it expects revenue of £3.7 billion, in line with the analyst consensus compiled by Visible Alpha. It expects adjusted operating profit of £659 million, 0.4% below consensus and within the company's guidance of £640 million to £685 million.
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UBS expects organic revenue growth of 4.8% this year, in line with Pearson's mid-single-digit guidance. It forecasts 4.9% for 2027, above the 4.6% consensus. UBS said it sees limited evidence of growth rising above mid-single digits in 2027.
UBS expects growth to pick up to 5% in the second half of 2026 from 4% in the first half. It also expects the adjusted operating margin to improve to 19.7% in the second half from 15.5% in the first half.
UBS said parts of the case for Pearson remain intact. It said the company may be less exposed to risks from artificial intelligence because most of its profit comes from assessments and qualifications, where it is one of only a few trusted players. Digital courseware, which UBS sees as the area most open to AI disruption, accounts for about 10% of group profit.
UBS also pointed to Pearson's decision to keep its 2026 group guidance at half-year results despite a weaker outlook for English-language learning. It said management's comments on its virtual learning and enterprise solutions businesses have grown more positive through the year.
UBS set a price of 1,550 pence in its upside scenario, 25% above the current price, and 950 pence in its downside scenario, 24% below. It said downside risks include Pearson failing to sustain organic growth, or earnings forecasts being cut because of a weaker U.S. dollar.
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