Pearson plc Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Predictions

Last week, you might have seen that Pearson plc (LON:PSON) released its interim result to the market. The early response was not positive, with shares down 3.7% to UK£5.43 in the past week. It looks to have been a decent result overall - while revenue fell marginally short of analyst estimates at UK£1.5b, statutory earnings beat expectations by a notable 23%, coming in at UK£0.34 per share. Following the result, the 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. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.

See our latest analysis for Pearson

Taking into account the latest results, Pearson's 14 analysts currently expect revenues in 2020 to be UK£3.46b, approximately in line with the last 12 months. Statutory earnings per share are predicted to step up 15% to UK£0.40. Before this earnings report, the analysts had been forecasting revenues of UK£3.47b and earnings per share (EPS) of UK£0.16 in 2020. There was no real change to the revenue estimates, but the analysts do seem more bullish on earnings, given the considerable lift to earnings per share expectations following these results.

There's been no major changes to the consensus price target of UK£5.81, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock's valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Pearson analyst has a price target of UK£9.00 per share, while the most pessimistic values it at UK£4.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. One thing that stands out from these estimates is that shrinking revenues are expected to moderate from the historical decline of 3.8% per annum over the past five years.

The Bottom Line

The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Pearson following these results. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. 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 said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Pearson analysts - going out to 2023, and you can see them free on our platform here.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Pearson (1 makes us a bit uncomfortable!) that you need to be mindful of.

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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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