Is Hewlett-Packard (NYSE: HPQ) worth 60% more than it's selling for? According to Citigroup (NYSE: C), it is. Earlier this week, the megabanker examined HP's fiscal Q4 earnings release and declared that this $43 stock was worth $70 if it was worth a dime.

Citi already thought HP was a buy, of course. It's just that now, Citi's doubly sure. According to Citi, HP's moving beyond PCs and printer ink. Its server sales are competing strongly with IBM (NYSE: IBM) and Dell (Nasdaq: DELL), and HP's also starting to steal market share from Cisco (Nasdaq: CSCO) in switches.

Citing the stock's 12-times-earnings valuation, and calling this a "discount" to other large-cap tech names -- IBM costs 13 times earnings, for example, while Dell sports a P/E ratio of 17 and Apple (Nasdaq: AAPL) will run you 20 times -- Citi believes HP's multiple will expand as earnings improve. It expects HP to ultimately produce $6 in profit in fiscal 2012.

And I say: Bunk.

Oh, I'm not disagreeing with the central points Citi makes. I just don't agree that this good news adds up to a buy thesis for HP, and certainly not one that envisions a 60%-plus rise in the stock price. Why not? Mainly, because I just don't see the same improvements that everyone else seems to feel was reflected in Monday's earnings release.

Sure, the company "beat estimates." Sales growth of 8% and earnings growth of 4% were, while nothing to cheer about, at least, "growth." Better growth than most investors expected, actually. But guess what didn't grow? Guess what actually declined in Q4: Free cash flow.

The best kind of profits
Earlier this week, I criticized Wedbush Morgan for urging investors to buy HP ahead of earnings. I argued that whatever news HP announc ed Monday, it wouldn't change the fact that the shares were already fairly valued from a P/E perspective. That they were even, arguably, a bit overvalued, inasmuch as HP's GAAP profits overstate true free cash flow.

Actually, HP's news did change that analysis a bit, and not in a good way. Before this week, we saw HP as a company earning $8.6 billion annually, but generating only $8.4 billion in free cash flow. Now that earnings are out, we know the company claims to have earned more ($8.8 billion) but actually generated less cash ($7.8 billion) in the past 12 months.

I'll say that again: Since last year, earnings grew 4%. Free cash flow declined 7%. Citi may think that's a trend that will generate 60% stock profits for investors. I disagree.