Pearson (PSO, Financial) anticipates a growth surge in its Assessment & Qualifications segment during the second half of the year, fueled by new and renewed contracts alongside expanding test prep services. Although Virtual Learning sales are predicted to dip in the first half due to earlier school losses and funding timing, a recovery is expected in the latter half, supported by rising enrollments for the 2025/2026 academic year.
The Higher Education sector is projected to experience stronger growth in 2025 compared to 2024, leveraging successful sales strategies and AI-driven product advancements. Despite potential impacts from future elections on immigration, affecting the Pearson Test of English (PTE) business, English Language Learning will maintain moderate growth.
Enterprise Learning & Skills is expected to achieve high single-digit growth, with significant contributions from Vocational Qualifications and new Enterprise Solutions contracts. The company's forecast aligns with market expectations for adjusted operating profit, while net finance costs are projected around GBP 65 million, influenced by an Education Bond and a GBP 350 million share buyback program initiated in March. Pearson estimates an effective tax rate on adjusted profit before tax of 24%-25% and anticipates a free cash flow conversion rate between 90%-100%, in addition to a GBP 0.1 billion State Aid repayment.
Wall Street Analysts Forecast
Based on the one-year price targets offered by 1 analysts, the average target price for Pearson PLC (PSO, Financial) is $17.50 with a high estimate of $17.50 and a low estimate of $17.50. The average target implies an upside of 9.99% from the current price of $15.91. More detailed estimate data can be found on the Pearson PLC (PSO) Forecast page.
Based on the consensus recommendation from 2 brokerage firms, Pearson PLC's (PSO, Financial) average brokerage recommendation is currently 3.0, indicating "Hold" status. The rating scale ranges from 1 to 5, where 1 signifies Strong Buy, and 5 denotes Sell.
Based on GuruFocus estimates, the estimated GF Value for Pearson PLC (PSO, Financial) in one year is $13.19, suggesting a downside of 17.1% from the current price of $15.91. GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business' performance. More detailed data can be found on the Pearson PLC (PSO) Summary page.
PSO Key Business Developments
Release Date: February 28, 2025
- Revenue Growth: Sales increased by 3%.
- Profit Growth: Profits grew by 10%.
- EBIT Margin: Achieved an EBIT margin of 16.9%.
- Free Cash Flow Conversion: Strong free cash flow conversion at 117%.
- Adjusted EPS: Increased by 7% to 62.1%.
- Operating Cash Conversion: Operating cash conversion at 110%.
- Dividend Increase: Dividend increased by 6%.
- Share Buyback: Announced a GBP350 million share buyback.
- Net Debt: Net debt stood at GBP0.9 billion.
- Return on Capital: Increased slightly to 10.4%.
- Assessments and Qualifications Margin: Increased to 23%.
- Virtual Learning Margin: Increased to 13%.
- English Language Learning Growth: Delivered a strong 8% performance.
- Workforce Skills Margin: Turned profitable with a 4% margin.
- Virtual Schools Enrollment: '24, '25 enrollments up 4% on a same school basis.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pearson PLC (PSO, Financial) delivered a financial performance in line with market expectations, achieving a 3% sales growth and a 10% profit increase.
- The company successfully renewed key contracts in US student assessments and scaled its qualifications business internationally.
- Pearson PLC (PSO) is building momentum in the enterprise business, evidenced by a new partnership with AWS.
- The company is scaling the application of AI across its products and services, leading to commercial benefits.
- Pearson VUE achieved a customer retention rate of 99%, showcasing strong customer loyalty and satisfaction.
Negative Points
- The virtual schools segment experienced a 1% decline due to known school losses, although enrollments were up 4% on a same school basis.
- Higher education margins remained flat due to inflation and one-off investment and restructuring costs.
- The English language learning segment faces potential headwinds from immigration market fluctuations due to upcoming elections.
- Despite enrollment growth in US higher education, the number of paid users to Pearson did not increase.
- The company faces challenges in maintaining growth rates in virtual schools and improving margins in higher education.
