HP Inc. (HPQ Quick QuoteHPQ - Free Report) stock soared 14.8% on Thursday after Warren Buffett’s Berkshire Hathaway revealed buying an 11.4% stake in the company. With this buyout, which has an estimated value of approximately $4.2 billion, Berkshire Hathaway has become the largest stockholder in the personal computer (PC) and printer maker.

In a regulatory filing on late Wednesday, Berkshire Hathaway disclosed that it holds about 121 million shares in HP. The American multinational conglomerate bought HPQ shares in multiple transactions, including about 11.1 million purchased this week.

Warren Buffett and Berkshire Hathaway have a fantastic track record of making billions of dollars through buying the shares of dull companies at cheap valuation multiples. Berkshire Hathaway’s disclosure of investments in any business often leads to a significant rise in the share price of that company as it is regarded as a stamp of approval from Warren Buffett.

Therefore, the latest stake buyout suggests HP stock’s long-term growth potential and validates the company’s strategy and capital return program.

A surge in demand for its products due to a pandemic-led homeworking boom, along with its aggressive shareholder return policy, has led to a sharp rise in its stock price over the last two years. Shares of the PC and printer manufacturer have more than doubled since the COVID-19 outbreak in mid-March 2020.

Despite so much upswing in its share price, the stock currently trades at a significant discount to the industry’s valuations. The stock currently trades at 12-month forward P/E multiple of 9.23X, which is significantly lower than the Zacks Computer - Mini Computers industry average of 25.97X.

We believe the company’s long-term prospect along with its cheap valuation multiples have made Berkshire Hathaway to invest in the stock.

Robust Demand Environment for PCs & Printers

HP has been benefiting from the rising demand for PCs amid the pandemic-induced remote-working and online learning wave. The pandemic has necessitated the use of PC systems for remote work, web-based learning, video conferencing, video gaming, social media, consumer entertainment and streaming or online shopping.

Additionally, the company has been witnessing strong demand for its mainstream and premium commercial personal systems, mainly benefiting from the recovery in global economies and the reopening of offices. HP anticipates continued strong demand for its personal systems in the near term.

Furthermore, HP is witnessing a strong rebound in its Printing business, which was affected by office closures during the pandemic. However, due to continued manufacturing and component supply constraints, the company failed to meet demand in the last concluded quarter. For the printing segment, HPQ projects robust demand for consumer printers and a continued improvement in the commercial segment as offices reopen.

Portfolio Expansion to Drive Long-Term Growth

HP’s focus on expanding its personal systems segment’s product portfolio bodes well for long-term growth. Last week, the company inked a definitive agreement to acquire the workplace collaboration solutions provider, Poly , in a transaction worth $3.3 billion to boost its peripheral business.

Formed by the merger of Plantronics and Polycom in 2018, Poly is a leading communications company that manufactures integrated communications and collaboration solutions. The company’s premium audio and video products connect people with incredible clarity and work seamlessly on any conferencing platform.

Therefore, with this acquisition, HP seems to capitalize on a boom in demand for a hybrid work setup following the pandemic. The rise in hybrid work is driving demand for technologies that support seamless collaboration across home and office environments.

To boost its capabilities in providing seamless hybrid work solutions, HP acquired the Canada-based global remote computing software innovator, Teradici Corporation, in 2021. Teradici’s solutions enable secure access to high-performance computing from any PC, tablet or Chromebook. Thus, the acquisition broadened HPQ’s capabilities in the personal systems segment by delivering new compute models and software-enabled digital solutions, which are compliant with the hybrid work environment.

Aggressive Capital Return Policy

HP has a steady track record of returning value to shareholders through share repurchases and dividend payouts. Since its split from Hewlett Packard Enterprise Company in November 2015, the company has returned more than $21 billion to shareholders through share buybacks and dividend payouts.

The company’s strong balance sheet and cash flow provide it with the financial flexibility to undertake shareholder-friendly initiatives and opportunities for product innovation and expansion in newer markets.

HP anticipates generating at least $4.5 billion of free cash flow in fiscal 2022. The company intends to return at least 100% of the free cash flow through share buybacks and dividend payouts in the current fiscal.

For this purpose, HPQ announced to repurchase at least $4 billion worth of its common stock in fiscal 2022. Additionally, it raised the 2022 annual dividend rate by 29% to $1 per share from 77.5 cents paid in fiscal 2021.

Zacks Rank & Stocks to Consider

Currently, HP and Poly each carry a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader technology sector include Jabil (JBL Quick QuoteJBL - Free Report) and Broadcom (AVGO Quick QuoteAVGO - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Jabil’s third-quarter fiscal 2022 earnings has been revised upward to $1.62 per share from $1.46 30 days ago. For fiscal 2022, earnings estimates have been revised upward by 67 cents to $7.25 per share in the past 30 days.

Jabil’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 13.5%. Shares of JBL have rallied 7.5% in the trailing 12 months.

The Zacks Consensus Estimate for Broadcom’s second-quarter fiscal 2022 earnings has been revised upward by 10.2% to $8.64 per share over the past 60 days. For fiscal 2022, earnings estimates have moved upward by 22 cents to $35.49 per share over the past 30 days.

Broadcom’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 1.9%. Shares of AVGO have rallied 24.3% over the past year.