This is not our finest hour. England has been kicked out of the world cup and Murray crashed out of Wimbledon. But at least the FTSE 100 got within 1% of its 1999 high and the economy is moving on up. This was a theme we discussed in last week’s GuruScreen column. In particular, we noted that UK business sentiment was at its highest since 1992. This is a trend which also seems to be driving some companies up the StockRanks, as earnings grow and managers take steps to meet future demand.

QVM movers:

Churchill China (CHH) is one company that has started to benefit from the economic recovery. Indeed, Churchill’s QVM StockRank climbed towards 98 this week, up from 79 last week. The company is engaged in the manufacture and sale of ceramic and related products for hospitality and household markets. It has strong fundamental momentum as illustrated by a high F-Score (8/9), reflecting improved profitability (in terms of cashflow and return on assets) and efficiency (in terms of gross margin and asset turnover).

Furthermore, earnings per share have grown each year, without fail, since 2009. In particular, earnings per share grew by 29% in the twelve months to December 2013. Churchill’s management team explain that this is ‘indicative of healthy background demand’ as ‘our UK sales team delivered a 10% increase in sales’ and ‘export revenues increased by an impressive 14%’.

The management team’s confidence in the economic recovery is also reflected in that fact that the company is upgrading its manufacturing capacity in order to meet future demand. The Preliminary Results report note that in 2013 ‘Capital investment was £1.5m, of which the largest part related to the long term development of our Stoke on Trent manufacturing facility.’

All this bullish sentiment is getting the brokers excited. They have consistently upgraded their estimates for the 2014 EPS figures. In July 2013, the brokers’ consensus was 22.1p. In January 2014 it was 25.4p. The consensus is now 26.5p. These upgrades have helped to the company to beat the market by 27% over the last year.

However, the company is still cheap, with a ValueRank of 78. The strong relative strength (27%) and broker upgrades give Churchill China a MomentumRank of 84, while steady operating margins (consistently around 6% since 2008) coupled with the high Piotroski score give a QualityRank of 95. In total, this gives Churchill China…

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