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Broker tips: Pearson, Flutter Entertainment, ConvaTec

Thu 06 May 2021 14:55 | A A A

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No news or research item is a personal recommendation to deal. Hargreaves Lansdown may not share ShareCast's (powered by Digital Look) views.

(Sharecast News) - Pearson rallied on Thursday as Exane BNP Paribas upgraded its stance on shares of the education publisher to 'outperform' and hiked the price target to 950.0p from 700.0p.

Exane reckons Pearson will succeed in scaling its up direct-to-consumer and D2C educational tech revenues as it progresses in its asset reshuffling.

"This should accelerate its top-line growth and drive margin expansion," Exane said. "While not quite the Amazon of education, we believe Pearson Ed Tech assets deserve a re-rating."

As such, Exane updated its sum-of-the-parts price target to reflect the valuation upside in these assets.

"Despite the recent share price rally as the market prices in the strategic reshuffling, we think further upside can be had once management increases disclosure on D2C revenue trends."

Analysts at Berenberg hiked their target price on gaming outfit Flutter Entertainment from 14,300.0p to 14,700.0p on Thursday, stating that first-quarter revenue trends were "encouraging".

Berenberg said it continues to like Flutter as its operational performance over the course of 2020 and the first three months of 2021 had continued to track ahead of its expectations.

With that said, Berenberg cautioned that it remains of the view that the valuation continued to look full at current levels and noted that the risk/reward profile was finely balanced, leading it to stand by its 'hold' rating on the stock.

"The valuation also looks rich. While we think Flutter is deserving of a rich valuation given its growth prospects in the US as well as the tailwinds in the Australian business, we see little room for multiple expansion at these levels," said Berenberg.

Peel Hunt upgraded its stance on shares of medical device company ConvaTec on Thursday to 'buy' from 'add' and lifted the price target to 285.0p from 240.0p.

The broker cut its recommendation on the stock last summer. It said that since then, management has consistently outperformed its expectations, with consensus 12-month forward earnings per share having bottomed and now starting to rise.

"The recent 1Q21 trading update put to bed our lingering nervousness on the business mix," Peel Hunt said.

The broker upgraded its 2021 EPS estimate by 4%, putting it above the top end of company guidance and 7% above consensus.

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