According to the latest Black Box Intelligence Report, cautious optimism has resurfaced for the restaurant industry in second quarter 2017. This comes after a prolonged period of difficulty in the space – the industry’s worst period since the end of recession. We believe the one restaurant stock that can help you gain an upper hand right now is McDonald’s Corporation (MCD Quick QuoteMCD - Free Report) . This Zacks Rank #2 (Buy) company has fine prospects and should make a value addition to your portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Growth

McDonald’s makes for a great pick in terms of Growth investment. Arguably, nothing is more important than earnings growth as surging profit levels is often an indication of strong prospects (and stock price gains) ahead for the company in question.

While McDonald’s historical (3-5 year) EPS growth rate is 13% compared with the industry average of 7%, investors should really focus on the projected growth for current year. Here, the company is looking to grow at a rate of 12.3%, thoroughly crushing the Zacks categorized Retail-Restaurants industry’s average, which calls for EPS growth of just 6.2% in comparison.

For all these reasons, the company currently has a Growth Score of ‘B’ on our style score system that helps us to identify potential outperformers.

Multiple Initiatives

To propel earnings forward the company is concentrating on growing its sales manifold. Notably, McDonald’s is accentuating on operational excellence and product innovation, offering a value menu, rolling out more limited-time offerings, reimaging restaurants as well as undertaking efficient marketing and promotions.

Additionally, the company is concentrating on delivery and technological enhancements to increase customer convenience, thereby boosting sales. In fact, first-quarter 2017 marked the seventh consecutive quarter of positive global comparable sales for the company.

Meanwhile, McDonald’s re-franchising strategy involves a shift to a greater percentage of franchised restaurants. This reduction in ownership, would weigh on near-term revenues, as it replaces company-operated sales by franchised sales. However, over the long term, it will reduce the company’s capital requirements and facilitate earnings per share growth and return on equity expansion.

Stock Price & Other Returns

Shares of McDonald’s have rallied over 27% year to date, widely outpacing the industry’s gain 11%. While any stock can see a spike in price, it takes a real winner to consistently outperform the market. We noticed that McDonald’s has also outperformed the industry in all the other time frames we considered – 4-week, 12-week and 52-week.

Remarkably, McDonald’s has been regularly rewarding its shareholders through share repurchases and dividends. The company has a track record of increasing dividend almost every year since the inception of its dividend payout policy in 1976.

Meanwhile, the company expects to return between $22 billion and $24 billion to shareholders for the three-year period ending 2019. We appreciate McDonald's’ efforts to consistently enhance shareholder returns, despite the sluggish economy across some of its major international markets as it reflects the company’s business strength and sustainability of its significant cash flows.

Estimate Revisions

McDonald’s has remarkably beaten earnings estimates in each of the trailing 11 quarters, with an average beat of 7.01% in the last four quarters.

In addition, upward estimate revisions reflect optimism in the stock’s prospects. In this context, current quarter estimates have moved north by 0.6% over the last two months, reflecting one upward revision versus none downward. Similarly, current year estimates have also climbed 0.6% in the same time period, as a result of two upward revisions against none downwards.

Low Beta Stock

A stock with beta less than 1 suggests that the price movement of the stock is not highly correlated with the market. Since they are less volatile than the market, they are safer bets at the moment. McDonald’s has an impressive beta of 0.68. Adding it to your portfolio brings down your portfolio’s overall beta, thereby reducing its risk.

Bottom Line

McDonald’s is the world’s largest chain of fast-food restaurants serving more than 100 countries. With an almost 10% share of the global informal-eating-out market, there is ample scope for it to grow in the future as it boasts a scale advantage compared to its peers.

However, investors should be cautious about foreign exchange headwinds as well as higher labor costs and investments related to sales initiatives that could hurt the company’s margins. Moreover, McDonald’s faces immense competition from restaurant chains that provide similar or healthier products such as Panera Bread Company , Chipotle Mexican Grill, Inc. (CMG Quick QuoteCMG - Free Report) and The Wendy’s Company (WEN Quick QuoteWEN - Free Report) .

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