Wow! What just happened to bombed-out Pearson?

Troubled education company Pearson is on a diet, aiming to become "leaner" and more focused. The former publisher of the Financial Times has had a dreadful couple of years, slipping from a peak of over £15 in March 2015 to 550p last year, a level not seen since the dark days of 2008.

Troubled education company LSE:PSON:Pearson is on a diet, aiming to become "leaner" and more focused. The former publisher of the Financial Times has had a dreadful couple of years, slipping from a peak of over £15 in March 2015 to 550p last year, a level not seen since the dark days of 2008.

A series of profits warnings triggered a spectacular fall from grace for the once part-owner of The Economist – five in total, the latest in January. A subsequent £2.5 billion pre-tax loss clearly didn't help, either.

But it seems to have been getting its act together recently, shedding around £650 million in costs over the past four years. And it continues to restructure, after announcing a further £300 million of cost savings to be made by the end of 2019, taking its tally to around £1 billion. It will flesh out the details at interim results in the summer.

Not only that, Pearson will also undertake a strategic review of its US-based K12 courseware publishing business, and said negotiations with joint venture partner Bertelsmann are ongoing in its attempt to exit its 47% stake in publisher Penguin Random House.

In a note to clients this morning, Barclays said that the costs savings were more than the market was hoping for. "In the context of our 2020e [cash profit] of £559 million it is a very large number," analyst Nick Dempsey explained, "but we have noted on a number of occasions that, historically, Pearson's savings programmes have not ended up benefiting EBITDA as they get absorbed elsewhere."

"Still, simply adding £300 million to 2020e EBITA would boost 2020 consensus EPS by c.60% - so investors can dream about a major benefit. Management has not given any colour on how much the savings will impact 2018 and 2019 (or the cost of it) but they will not impact 2017.

"So while we remain sceptical about savings dropping through, this is a number that should please investors." And please investors it did. Pearson shares traded as high as 773p Friday morning, up 17%, before settling back to 740p later. Still, that's still around half the price two years ago.

In its first-quarter update, Pearson added that trading was in line with guidance for operating profit of between £570 million and £630 million for 2017. Net debt at the end of the period was unchanged from the end of 2016 at £1.1 billion, while sales increased 6% in underlying terms, led by North America.

While Q1 is small in the overall scheme of full-year numbers, and the tailwinds that drove performance are likely to unwind in Q2, "it does no harm to start the year at +6% when we forecast -2.7% for FY", Dempsey added.

Investec analyst Steve Liechti called the £300 million an "impressive number", but will await interims for more detail on where the savings will come from. He expects full-year profit at the bottom end of guidance, giving adjusted earnings per share of 48.4p. "[We] do not feel inclined to move off our bottom-end numbers currently given previous experience and the risks in a second-half weighted business."

Chief executive John Fallon, who has come under pressure from both shareholders and teaching unions this week, said the update was "encouraging", especially considering the bulk of its sales come later in the year.

Fallon – who is in line for a 20% pay rise, although shareholders may have a significant say in whether that goes ahead at today's AGM – added that a leaner Pearson should be "equipped to innovate and win in digital education".

"The measures we are announcing today build on the work completed last year and will allow us to further simplify our portfolio, reduce costs and accelerate our digital transformation."

However, reports earlier this week had the American Federation of Teachers, alongside representatives from the UK, Denmark and South Africa, writing to the board of Pearson calling for Fallon to be sacked.

They claim that under Fallon, Pearson has "pursued a flawed business strategy that is neither in the interests of kids, parents [or] teachers," according to the FT.

Big question now is whether this dramatic share price recovery is sustainable, or a fake.

Pearson shares have almost completed a textbook fill of the gap created by January's collapse. However, before then there's the 23% Fibonacci retracement of the plunge between March 2015 and January this year, at around 780p.

Liechti has placed his 650p target price under review and, while he points out that Pearson's valuation is below its business-to-business peers, trading on a forecast 2017 price/earnings (PE) multiple of 13.6 times, the shares are "not overly cheap".

Deliver that anything like a 60% boost to 2020 consensus earnings and Pearson is undoubtedly cheap. But that's three years away. Question is, do you back management to make it happen. Jury's out on that one.

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