Rockwell Collins (COL) reported its 2014 fiscal-first-quarter earnings Tuesday. How good was the news? Well, it wasn't blow-the-doors-off-the-joint good. But it was good enough to defy a downturn on the Dow, and send Rockwell stock up a good 0.8% during the course of the trading day. For the quarter, Rockwell grew its quarterly sales 1% to $1.07 billion and tacked on 2% earnings growth to $0.96 per share.

But on the downside, it generated precisely $0 in free cash flow, with capital expenditure precisely offsetting operating cash flow of $38 million. This was a decline from last year's free cash flow number of $23 million and far below the company's Q1 reported net income of $131 million.

On its face, none of this sounds like particularly good news. So why did investors react positively to Rockwell Collins' announcement, anyway?

Two reasons: First, Rockwell won the expectations game yesterday, inasmuch as its earnings grew even the reported 2%. (Analysts had expected earnings to remain flat against the year-ago quarter, at $0.94 per share). Second, comments from Rockwell CEO Kelly Ortberg, to the effect that defense spending cuts over the next couple years are likely to be less drastic than previously feared, are bucking up expectations for future earnings.

As Rockwell now calculates it, revenues at the company's government systems business, which account for 52% of annual revenue and 51% of annual profits, are likely to experience only a "mid-single-digit" percentage decline this year. That's as compared to the "mid-to-high single digits" decline previously feared. This should result in revenues significantly ahead of prior guidance. Furthermore, Rockwell sees the government business segment leveling off in 2015, then resuming "modest" growth thereafter.

Profitwise, Rockwell predicts this will yield somewhere between $4.35 and $4.55 per share in GAAP earnings this year, a nickel ahead of prior guidance. Management also anticipates generating $600 million-$700 million in operating cash flow this year.

Assuming $160 million in capital spending, such a level of operating cash flow should yield free cash flow of roughly $500 million for the year and a valuation in the neighborhood of 21 times FCF. Unfortunately, it's hard to see this as a positive for Rockwell stock, though. After all, the company's P/E is only 17 -- already high for the company's projected 11% long-term-growth rate. If the stock's P/FCF ratio is likely to be even higher than its P/E, this hardly makes the stock look more attractive.

In short, even if the business outlook is starting to brighten for Rockwell Collins, such prospective improvement already seems fully baked into the stock price. Up 30% over the past year already, I see little reason to hope for additional gains in Rockwell's stock in the year to come.