Sometimes, there's just no pleasing folks. When United Technologies (NYSE: UTX) reported second-quarter earnings Wednesday, investors sold off the stock by nearly 2%. Even after a rebound yesterday, the stock continues to trade below its pre-earnings level. But is the punishment deserved?

Let's review. In the second quarter, UTC reported:

  • "Organic" revenue growth in all six of its business segments
  • Overall sales growth of 9% (rising to $15.1 billion)
  • Earnings growth of 21% ($1.45 per share)
  • Operating margin improvement of 120 basis points (the margin was 15.9%)

Better still, CEO Louis Chenevert confirmed that "order rates remain strong," encouraging management to up its earnings prediction for the full year to about $5.40 per share. If it hits that number, 2011 earnings will be up 14% in comparison to 2010 earnings, rising about twice as fast as anticipated revenues.

So far, so good. Now for the bad news: Free cash flow for the quarter came to just $1.1 billion, or about $200 million shy of UTC's claimed "net income." Granted, Chenevert affirmed that over the course of the year, this divergence should narrow and "cash flow from operations less capital expenditures [will] meet or exceed net income ..." So far, however, the company is 0-and-2 on that promise for the first two quarters of the year.

Why is this important? Well consider: Right now, from a purely plain vanilla P/E perspective, UTC stock looks a mite pricey at 18 times earnings, versus long-term growth estimates of less than 11%. The company's 2.2% dividend yield takes some of the sting out of that. But still, in order for the stock to look "cheap," or even merely fairly priced, we're going to want to see free cash flow come in significantly ahead of GAAP profits. Either that, or UTC has to boost its growth rate significantly.

The problem with that latter option is that it may not be possible. UTC just lost a big growth driver when Boeing (NYSE: BA) chose to go with General Electric (NYSE: GE) to "re-engine" the 737s Boeing will be selling to AMR (NYSE: AMR). We already know GE has been gaining ground on UTC in engine sales for the A320 neo.

Plus, GE's expected to grow faster (close to 15% per year), and costs less (16 times earnings.) Put it all together, and while I remain a fan of UTC, when it comes to stocks I have to conclude -- advantage: GE.

Still, Chenevert has a knack for delivering what he promises. If accelerated growth is out of the question, can he make up the difference on free cash flow? Add United Technologies to your Fool Watchlist and find out.