MCDONALD’S CORP. $96 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 989.9 million; Market cap: $95.0 billion; Price-to-sales ratio: 3.4; Dividend yield: 3.4%; TSINetwork Rating: Above Average; www.mcdonalds.com) operates 35,400 fast food restaurants in 119 countries. The company serves a wide variety of food, but it’s best known for its hamburgers and french fries.

McDonald’s continues to renovate its restaurants, launch new menu items— such as premium coffee— and appeal to cost-conscious consumers through its popular Dollar Menu. These improvements raised its revenue by 23.6%, from $22.7 billion in 2009 to $28.1 billion in 2013.

Same-store sales rose just 0.2% in 2013, because the company attracted 1.9% fewer customers, which offset higher spending per visit.

In the U.S. (which supplies 31% of McDonald’s revenue), same-store sales rose 0.2%. The U.S. operations face many hurdles, such as higher minimum wages and legally mandated overtime costs. New restrictions on drink sizes and demands that fast-food sellers post calorie counts could also hurt sales.

Same-store sales were flat in Europe (40% of revenue) and down 1.9% in Asia (23%). Canada, Latin America and other areas account for the remaining 6% of McDonald’s revenue.

Earnings rose 24.9%, from $4.4 billion in 2009 to $5.5 billion in 2011. McDonald’s is an aggressive buyer of its own shares, so per-share earnings rose 32.4%, from $3.98 to $5.27. Earnings per share then rose to $5.36 in 2012, and to $5.55 in 2013.

Speedier service will boost profits

The company aims to increase its sales by 3% to 5% each year, and its earnings by 6% to 7%, through several new initiatives.

For example, it plans to simplify its menu, hire additional staff during peak hours and install moreefficient kitchen equipment. McDonald’s is also adding lanes to its drive-through locations where possible, and upgrading its cash registers to make it easier to pay through smartphones. These moves should speed up checkout times and encourage repeat visits.

At the same time, the company continues to introduce healthier foods, such as salads, fresh fruit and egg-white breakfast sandwiches. That should help it attract diners who normally avoid fast food.

These upgrades are in addition to the company’s plan to keep adding new restaurants. In 2014, it expects to open 1,500 to 1,600 locations. That includes 800 new outlets in Asia, which will help McDonald’s profit as rising prosperity in countries like China and Vietnam makes its food more affordable. It also plans to open 300 locations in Europe and 250 in the U.S. and renovate 1,000 other outlets worldwide.

These improvements will cost $2.9 billion to $3.0 billion this year, up from the $2.8 billion that Mc- Donald’s spent in 2013.

The company can easily afford these outlays. It generated $7.3 billion of cash flow in 2013, and that could rise to $7.4 billion this year. As well, it ended the year with long-term debt of $14.1 billion (or just 15% of its market cap), and it held cash of $2.8 billion, or $2.83 a share.

New ways to cut expansion costs

McDonald’s makes most of its sales through franchises run by local operators. Under a conventional agreement, the company owns the real estate and buildings, and the franchisees pay a combination of rent and royalties. Conventional franchisees operate 58% of its restaurants.

The company (directly or through partly owned foreign affiliates) owns 29% of its outlets. But it continues to sell some of these outlets to franchisees, particularly in China. Selling these outlets makes sense, as local owners are in a better position to adjust menus to suit local tastes. McDonald’s realized gains of $199.4 million on sales of company-owned restaurants in 2013, up from $151.5 million in 2012.

McDonald’s has been opening more outlets under developmental licenses, which cut its capital costs. Under these deals, franchisees pay for the land and build the restaurant, and McDonald’s receives a royalty based on sales. Developmental franchisees now operate 13% of McDonald’s restaurants, mainly in Latin America and the Caribbean.

The company is a major sponsor of the Olympics and the FIFA Soccer World Cup, and it expects to spend more on advertising this year. However, big sporting events like these let McDonald’s promote its products to billions of TV viewers in both developed and developing countries.

Rising dividend, low p/e add appeal

Higher sales in Europe and Asia should increase the company’s 2014 earnings to $5.82 a share. The stock trades at a reasonable 16.5 times that estimate. Mc- Donald’s has also raised its dividend each year since 1976. The current annual rate of $3.24 yields 3.4%.

McDonald’s is a buy.