Pearson's Revised Price Target at £1,160 GBp: A Mixed Financial Health and Valuation Picture

Barclays has revised its price target for Pearson to £1,160 GBp, up from £1,105 GBp, while maintaining an Equal Weight rating. Pearson has undergone significant transformation, focusing on higher education, testing, and certification services. The company's financial health shows mixed results, with modest revenue growth and stable liquidity. Pearson's revenue trends highlight efforts to stabilize and grow core educational offerings, with an expanding operating margin and a focus on higher education and professional certification. The company's valuation metrics suggest potential undervaluation, with a P/E ratio of 17.64 and P/B ratio of 2.07.

Pearson (LONDON, Aug. 1, 2025) reported its interim results for the six months to June 30, 2025, showcasing mixed financial performance and notable strategic progress. The company's business performance saw a 2% increase in underlying sales, reaching £1,722 million, compared to £1,754 million in the same period last year [1].

Key highlights of Pearson's performance include:

- Sales: Sales increased by 2% to £1,722 million, with each business unit performing broadly in line with expectations.
- Operating Profit: Adjusted operating profit rose by 2% to £242 million, driven by operating leverage on sales growth.
- Cash Performance: Free cash flow improved by £129 million to £156 million, driven by strong operating cash flow and a £114 million State Aid tax recovery.
- Balance Sheet: Net debt decreased by £0.2 billion to £1.0 billion, reflecting strong balance sheet management.

Pearson's strategic progress is evident in its partnerships and acquisitions:

- AI Transformation: Strategic partnerships with Microsoft, AWS, and Google Cloud are driving AI transformation.
- Enterprise Business: Momentum is building with new partners such as HCLTech.
- Product Suite: New features like "Go Deeper" within AI-powered study tools and the launch of Pearson English Express Test are being introduced.
- Acquisitions: Pearson completed the acquisition of eDynamic Learning, adding a core pillar to its Early Careers strategy.

The company's valuation metrics suggest potential undervaluation, with a P/E ratio of 17.64 and P/B ratio of 2.07. Barclays has revised its price target for Pearson to £1,160 GBp, up from £1,105 GBp, while maintaining an Equal Weight rating [2].

References:
[1] https://www.prnewswire.com/news-releases/pearson-interim-results-for-the-six-months-to-30th-june-2025-unaudited-302519220.html
[2] https://www.barclays.com