Undervalued Stock with Prospects

THE VALUE INVESTOR: Analysts are encouraged by global publishing company Peasrson’s ongoing transition to electronic platforms and emerging market ventures

R.J. Hottovy, CFA 20 March, 2014 | 10:37AM
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Pearson's (PSON) is a global publishing firm focused mainly on the education industry. Pearson has significant operations in the U.S., where it generates about 60% of its overall sales. The Financial Times segment includes the flagship Financial Times paper and business magazines. The company recently agreed to combine its Penguin book publishing business with Bertelsmann's Random House unit in which Pearson will hold a 47% interest in the joint venture.

Following recent results, we intend to review our long-term assumptions, but given that our 2014 earnings estimate is at the low end, we do not expect to make material changes to our £12.50 fair value estimate. We continue to view Pearson as an entrenched competitor in the education publishing market, and we believe the company continues to transition well from traditional publisher to education services provider.

Difficult market conditions for college textbooks persist in North America amid lower college enrolment totals and subsequent bookstore purchases. This was reflected in the 1.9% decline in North American higher education enrolments. Nevertheless, revenue in North America grew 4.6% driven by Embanet, the company's online platform. The International Education segment was also challenged in 2013, with revenue declining 1.8% as a result of soft Western Europe markets. The U.K. was particularly weak ahead of an anticipated curriculum change, but emerging markets showed encouraging growth.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Pearson PLC617.00 GBX-1.41Rating

About Author

R.J. Hottovy, CFA  is a director of equity analysis with Morningstar.