Hewlett-Packard Company (NYSE:HPQ) released its latest earnings report last night, and there weren’t really any surprises. Stifel analysts think free cash flow is the true story here and that the company’s Oct. 8 Analyst Day will end up being more of a catalyst for its stock than last night’s earnings report was.

Hewlett-Packard

Hewlett-Packard’s free cash flow story

In a report dated Aug. 20, 2014, analysts Aaron C. Rakers, Joseph Quatrochi and Andrew Shinn say investors will be focusing heavily on Hewlett-Packard’s free cash flow heading into next year. The company expects to be at around $9 billion in the 2014 fiscal year, compared to its previous guidance of between $6 billion and $6.5 billion.

In the third quarter the company reported strong free cash flow of $2.59 billion, which the Stifel team says is “an impressive” 8-day cash conversion cycle.” Previously, Hewlett-Packard had guided for about a 20 to 22 day cash conversion cycle.

The Stifel analysts think investors may be expecting Hewlett-Packard to target between $7 billion and $7.5 billion in free cash flow for the 2015 fiscal year. They note that a normalization in free cash flow should be correlated closely with non-GAAP net income.

The company still plans to return about half of its free cash flow to investors through share repurchases and dividends. However, the Stifel team notes that the commentary on “material non-public information” during the third fiscal quarter of 2014 will probably increase investor focus on the potential for a return to merger and acquisition activity from now on.

Notes on Hewlett-Packard’s earnings results

The analysts note that HP’s PC revenue was solid, with 12% year over year growth, and that there was upside to the EBIT percentage, which was 4%, the highest margin since the July 2012 quarter. The company added that the results were impacted by the Windows XP upgrade cycle and also an aging installed base However, Hewlett-Packard believes most of the impact from the XP cycle is probably over.

The company’s Enterprise Group saw x86 servers grow at 9% year over year, as demand remained positive and HP benefited from dislocation in International Business Machines Corp (NYSE:IBM) and Lenovo Group Ltd. (OTCMKTS:LNVGY) (HKG:0992). The Stifel team notes that storage is still weak, as revenue fell 4%, although it is reflective of a 9% growth in converged storage and also double-digit 3PAR growth.

Enterprise Services revenue also was weak, as it declined 4% year over year. The positive 4.1% EBIT offset the weak revenue in the segment, however. And in Printing, revenue was weak as well, as it also declined 4%. Supplies, which was 65% of the total IPG, fell 5%, and Hewlett-Packard expects the weakness to continue due to inventory correction going into the fourth fiscal quarter.

Stifel analysts maintained their Hold rating on Hewlett-Packard after last night’s earnings results.