Citi downgrades Pearson to 'neutral' on valuation grounds

(Sharecast News) - Citi downgraded its stance on educational publisher Pearson on Wednesday to 'neutral' from 'buy' on valuation grounds following a circa 40% rally in the shares since the February low. The bank said Pearson's first-half performance highlighted positive operational momentum with a small beat at sales and adjusted EBIT levels.

"Following the H1 performance, we increasingly believe the medium-term framework for average margin growth of 40bps as a floor," it said. "In the short term, the weaker A&Q margins and a downgraded guide for English Language Learning have led us to trim our FY26E forecasts for adjusted EBIT, and EPS by 1%."

Citi lifted its price target on Pearson to 1,345p from 1,300p, mainly to reflect a higher target multiple of 17x, from 16.5x.

"At the current valuation, the shares fairly reflect the balance of operational momentum with limited upside to short-term consensus," the bank said.

At 1125 BST, the shares were down 2.5% at 1,195p.