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Pearson plc Just Beat Earnings Expectations: Here's What Analysts Think Will Happen Next

Pearson plc (LON:PSON) last week reported its latest yearly results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. Revenues were UK£3.9b, approximately in line with what analysts expected, although statutory earnings per share (EPS) crushed expectations, coming in at UK£0.34, an impressive 23% ahead of estimates. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether analysts have changed their mind on Pearson after the latest results.

See our latest analysis for Pearson

LSE:PSON Past and Future Earnings, February 25th 2020
LSE:PSON Past and Future Earnings, February 25th 2020

Following the recent earnings report, the consensus from13 analysts covering Pearson expects revenues of UK£3.75b in 2020, implying a discernible 3.2% decline in sales compared to the last 12 months. Statutory earnings per share are expected to increase 2.1% to UK£0.35. In the lead-up to this report, analysts had been modelling revenues of UK£3.81b and earnings per share (EPS) of UK£0.34 in 2020. So it's pretty clear that, although analysts have updated their estimates, there's been no major change in expectations for the business following the latest results.

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It will come as no surprise then, to learn that the consensus price target is largely unchanged at UK£6.19. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Pearson, with the most bullish analyst valuing it at UK£9.20 and the most bearish at UK£4.80 per share. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.

In addition, we can look to Pearson's past performance and see whether business is expected to improve, and if the company is expected to perform better than wider market. One obvious concern is that although revenues are forecast to continue shrinking, the expected 3.2% decline next year is substantially more severe than the 2.4% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the market are forecast to see their revenue decline 3.2% per year. So it looks like Pearson is also expected to see its revenues decline at a faster rate than the wider market.

The Bottom Line

The most obvious conclusion from these results is that there's been no major change in the business' prospects in recent times, with analysts holding earnings per share steady, in line with previous estimates. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Pearson's revenues are expected to perform worse than the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

With that in mind, we wouldn't be too quick to come to a conclusion on Pearson. Long-term earnings power is much more important than next year's profits. We have forecasts for Pearson going out to 2023, and you can see them free on our platform here.

You can also see whether Pearson is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.