BofA/Merrill Lynch analyst Scott Craig reiterated a Buy rating and bumped his price target on Hewlett-Packard (NYSE: HPQ) to $40.00 (from $39.00) following Q3 results, saying the margin improvement/FCF story is still intact.

Craig noted EPS of $0.89 was right in line with the/Street $0.90/$0.89, even with a slight revenue beat (expected) on strength in PCs. He said investors should be encouraged by the strong FCF generation ($2.6bn vs. our $2.1bn) and the higher $9bn expectation for F2014. While Q4 guidance was in-line, their EPS estimates increase modestly in F15/F16 on margin improvement in Services, which is key to the turnaround.

FY 2015 EPS goes from $3.84 to $3.98 and FY 2016 EPS from $4.01 to $4.15.

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Shares of Hewlett-Packard closed at $35.12 yesterday.