Why This HP Analyst Remains Skeptical Even After Warren Buffett's $4.2B Investment

HP Inc (NYSE; HPQ) shares rallied Thursday after Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) revealed a new 121-million-share stake in HP worth about $4.2 billion.

In a new filing, Berkshire said it now holds roughly an 11% ownership stake in HP, a major vote of confidence from one of the most famous and successful investors of all time.

Bull & Bear Case: On Thursday, Bank of America analyst Wamsi Mohan said Buffett is likely focused on HP's attractive valuation, free cash flow profile and strong capital return program. Yet Mohan said there are plenty of points to the HP bear case as well.

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Mohan said HP benefited from the pandemic, and its earning growth and margins will likely decline in coming years. In addition, the rate and pace of its capital return will likely also slow after the company's recent $3.3-billion buyout of Poly, he said.

Finally, the PC market will likely experience a material slowdown after sales were pulled forward during the pandemic, according to BofA. 

Buffett & Tech Stocks: Mohan said Buffett has had mixed results from his previous ventures into the tech sector.

Apple, Inc. AAPL has been a home run investment for Buffett in recent years, but a previous investment in IBM IBM ended up being a loser.

For now, Mohan said he remains in the HP bear camp given his expectation that HP's organic revenue growth will slow in the near-term.

Bank of America has an Underperform rating and $33 price target for HP stock.

Benzinga's Take: Betting against 91-year-old Warren Buffett has been a sure-fire way to look stupid for decades, and critics of Buffett's value investing style during the pandemic market rally have been proven dead wrong.

Since the beginning of 2020, Berkshire's total return of 52.1% has outshined the 43.7% total return of the SPDR S&P 500 ETF Trust SPY, as well as the 31.9% total return of the popular ARK Innovation ETF ARKK.