Pearson rating slashed to 'underperform' from 'buy' over at Jefferies

LONDON (ShareCast) - Pearson (Xetra: 858266 - news) , the provider of educational books and the owner of the Financial Times, had its rating lowered to 'underperform' from 'buy' by Jefferies on Monday. The US investment broker said recent performance has taken the stock to a lofty multiple.

"Valuation looks stretched. Be it constraints around public spending, controversy surrounding educational change through to the emergence of fundamentally free digital technologies, together with the increasing availability of the highest quality, absolutely free digital content," said Jefferies.

The broker said that in the US, where Pearson has significant exposure, the common core debate continues to rage and, while digital progress has been slow, there are some telling changes to business practices.

"The 'adoption state' structure has broken down as districts respond to the increasingly decentralised and empowered digital landscape. For publishers, the landscape is changing very rapidly," the broker explained.

However, Jefferies pushed its target price on the stock slightly higher to 1230p from 1184p.

That said, "We see a valuation at around 17.8x forward earnings as too rich given the profound challenges a recently restructured Pearson will encounter in seeking to execute in a digital setting," Jefferies added.