Pearson rally halts as Citi turns neutral on valuation concerns

Pearson PLC (LSE:PSON) was downgraded by Citi on Wednesday, as the investment bank moved its rating on the global education group to 'neutral' following an extended share price rally. The shares fell 3% to 1,193.75p in London trading as Citi adopted a 'neutral' stance and adjusted its financial models after a circa 40% rally in the stock since the February low. At the heart of the update is positive operational momentum, highlighted during the first half of the year, which delivered a small beat on sales and adjusted operating profit. Following that first-half performance, the broker increasingly believes that the publisher's established medium-term framework for average margin growth of 40 basis points serves as a baseline floor for the group. In the short term, however, weaker assessment and qualifications margins, alongside a downgraded guidance for the English Language Learning division, have led Citi analysts to trim their financial forecasts. Consequently, those factors prompted a 1% downward revision to the broker's underlying estimates of adjusted operating profit and earnings per share for the upcoming 2026 financial year. In the same note, the investment bank increased its target price on the education publisher to 1,345p, a decision mainly reflecting the application of a higher target multiple. That specific valuation metric was lifted by the investment bank from 16.5 times to a new target multiple of 17 times earnings. At the current valuation, the investment bank concluded that the 'neutral' rating fairly reflects the ongoing balance of positive operational momentum against the limited remaining upside relative to the short-term marke...