The billionaire Warren Buffett took a stake in HP because he thought it was a good company. Warren Buffett has given HP (HPQ) his seal of approval in a lot of different ways In a new filing on Wednesday, Berkshire Hathaway said that it owns 121 million shares of HP, which is a lot. The investment, worth $4.2 billion, gives Berkshire Hathaway a stake in HP that is about 11.4%.
Why The billionaire Warren Buffett took a stake in HP
HP: “Berkshire Hathaway is one of the world’s most respected investors, and we are happy to have them as a shareholder in HP Inc.”
There are a lot of reasons why Buffett’s investment makes sense. In the first place, HP has been going strong under CEO Enrique Lores as his operational turnaround has worked out.
The company smashed analyst profit expectations for its first fiscal quarter, which was reported in late February. The strong sales of commercial computers and printers were the main reason. There were more commercial computer and printer sales than there were last year, HP said.
There was a lot of strength in commercial computers and printers, but there was a lot less strength in consumer products. HP said that consumer PC sales fell 1%, while consumer printing sales fell by 23% for the same time.
Operating profit margins rose 70 basis points in HP’s personal systems business, but they fell 160 basis points in the printing business, which makes printers.
Another $1.8 billion worth of HP stock was bought back in the last three months. HP has been a big buyer of its own stock under Lores.
The company gave a positive outlook even though there are still problems in the supply chain and the PC market is slowing down.
People who work for HP think the company will make money in the second fiscal quarter. They think it will be in the range of $1.02 to $1.08. Analysts thought each share would cost $1.02. The company raised its full-year EPS forecast from $4.07 to $4.27 to $4.18 to $4.38 a share. Before, it was $4.07 to $4.27. Wall Street thought each share would cost $4.17.
Even though HP has been going strong during the pandemic thanks in part to aggressive cost-cutting, Lores has started to put his own stamp on the company through acquisitions.
The company said in March that it was going to buy Poly, a company that makes workplace collaboration tools, for $3.3 billion, which is a lot. In 2021, a company called HyperX will pay $425 million to buy the company.
Despite all of these efforts, there could be a case that HP’s stock hasn’t been properly valued by investors. This is why Buffett came into the market.
In Yahoo Finance Plus, HP shares only have a forward P/E of 8.5 times. That’s a lot less than the forward PE multiple on the S&P 500, which is about 18.2 times. It’s also a lot less than the 12 times that Xerox shares sell for, even though HP did less well during the pandemic than Xerox did.