Shares of Pearson don’t deserve the same beatdown Chegg got, even as the threat of artificial intelligence grows in the education technology space, Bank of America said. Analyst David Amira double-upgraded the edtech stock to buy from underperform. He raised his price target to 895 pounds from 885 pounds, now implying an upside of 18.7% over Tuesday’s close. “The read-across to Pearson feels overly harsh,” he said in a note to clients Wednesday. “We don’t discount the potential threat of generative AI, but view risk/reward as now attractive.” The London-based analyst upgraded the U.K. shares. U.S. investors can buy the stock through the ADR that trades under the ticker PSO . U.S.-listed shares are up more than 9% in premarket trading after losing 14.6% on Tuesday. The stock has dropped nearly 17% since the start of the year. Amira said the company gave a “relatively confident” first-quarter update, pointing specifically to its 6% organic growth, the tripling of subscribers to its Pearson+ platform year over year and a share buyback. The update came within days of Chegg ‘s first-quarter report, which prompted a selloff on Tuesday after management said ChatGPT was hurting its business. But Amira said Pearson is in a different boat than Chegg because the reasons customers use are different, with Chegg focused more on homework help and Pearson on textbooks. He also noted that Pearson gave positive commentary around enrollment expectations. Because Pearson is a diversified business with higher education making up just about a quarter of sales, the use of AI could have varying impacts, he said. But the analyst did note that AI could make open education resources easier to create, which in turn would lessen the need for students to go through Pearson. In the wake of the selloff, the risk-reward ratio now looks more attractive, Amira said. Its price-to-earnings multiple should still fall below peers in the media sector even if profit tied to higher education drops 20%, as is the consensus estimate for Chegg, he explained. Amira reiterated his neutral rating on Chegg in his note, but slashed the price target from $20 to $11. His target implies a 21.1% upside from where the stock ended Tuesday. But the target is still 37.5% off where shares finished Monday’s session, illustrating the impact of Tuesday’s tumble on the stock’s value. PSO CHGG 5D mountain U.S.-listed shares of Pearson vs. Chegg — CNBC’s Michael Bloom contributed to this report.
This education stock was hit by the emerging A.I. threat, but now BofA calls it a screaming buy
