Is Now the Time to Buy Pearson?
LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.
So, right now, I am trawling through the FTSE 100, and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.
Today, I am looking at Pearson to determine whether you should consider buying the shares at 1,166p.
I am assessing each company on several ratios:
- Price/Earnings (P/E): Does the share look good value when compared against its competitors?
- Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?
- Yield: Does the share provide a solid income for investors?
- Dividend Cover: Is the dividend sustainable?
So let's look at the numbers:
|Stock||Price||3-yr EPS growth||Projected P/E||PEG||Yield||3-yr dividend growth||Dividend cover|
The consensus analyst estimate for next year's earnings per share is 81.5p (3% fall), and dividend per share is 48p (7% growth).
Trading on a projected P/E of 14.3, Pearson appears significantly cheaper than its peers in the media sector, which are currently trading on an average P/E of around 18.5.
Unfortunately, Pearson's P/E. and falling near-term earnings. give a negative PEG ratio, which cannot help with my analysis.
At 3.8%, Pearson's dividend income is above the media sector average of 2.7%. Furthermore, Pearson has a three-year compounded dividend growth rate of 15%, implying that the yield will continue to stay above that of its peers.
Indeed, the dividend is nearly twice covered by earnings, giving Pearson plenty of room for further payout growth.
Pearson currently looks cheaper than its peers, but is now the time to buy?
Pearson is the owner of the Financial Times newspaper and the Penguin publishing brand. In addition, the company is the world leader in educational materials such as textbooks, digital education software, and examination papers.
Indeed, due to Pearson's world-leading position in education, the company was able to raise North American education revenues by 2% during 2012, while aggregate revenues for the North American education market as a whole fell by 10%.
That said, like the rest of the publishing sector, Pearson is at risk from falling sales in the traditional book market.
However, the company is taking steps to reduce its reliance on traditional publishing and, at the end of 2012, 50% of all Pearson's sales were digital-based.
In particular, digital subscriptions for the Financial Times grew 18% during 2012, which meant that, for the first time in its history, there were more copies of the newspaper sold online than sold in print. Furthermore, at the end of 2012, 17% of Penguin sales were in digital e-book form.
Nonetheless, despite these strong figures, Pearson's management remains cautious about the future, and recently announced a restructuring plan aimed at reducing costs by around £100 million a year from 2014.
So, all in all, taking into account Pearson's market-leading positions, restructuring plan, and current discount to sector peers, I feel now looks to be a good time to buy Pearson at 1,166p.
More FTSE opportunities
As well as Pearson, I am also positive on the FTSE 100 share highlighted within this exclusive free report.
You see, the blue chip in question offers a 5.7% income, its shares might be worth 850p compared to about 700p now -- and it has just been declared "The Motley Fool's Top Income Stock For 2013!"
Just click here to read the report -- it's free.
In the meantime, please stay tuned for my next verdict on a FTSE 100 share.
The article Is Now the Time to Buy Pearson? originally appeared on Fool.com.Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.