In a note on Monday, the Swiss bank also hiked its target price for the FTSE 100 firm to 650p from 545p, saying they believed the consensus forecasts for the company’s 2021 financial year now offered “more upside than downside risk”.
UBS also said the disposal by the company of non-core assets followed by a buyback and cost-out could be over 20% earnings accretive, while Pearson could also build profitable businesses out of the US higher education segment.
“The question we are asked most by investors is whether Pearson can deliver profitable growth in US higher education, in both Courseware and [online program management]. Our deep-dive work…suggests the answer is yes. First, as students find it harder to source current editions in the secondary market, we believe they will increasingly switch to low priced eBooks. Second, our survey suggests the new features in Pearson’s next generation products could lead to higher adoption of digital courseware. Finally, we think Pearson can grow [online program management] enrolments without additional investment, with key customer risks manageable”, the bank said.
Analysts also highlighted upside risk to their forecasts from a recovery in school textbook sales, while a downside risk was a weak international performance in the fourth quarter of 2020.
Shares in Pearson rose 3.5% to 530.4p in lunchtime trading.