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Why McDonald's Remains on the Value Menu

Tickers in this article: MCD
NEW YORK ( TheStreet) -- For as dominant as fast-food titan McDonald's(MCD) has been over the past couple of years -- or for that matter over the past decade, a span in which it has increased average annual sales by at least 6% while more than doubling its operating margins -- even more remarkable is the fact that McDonald's boasts an almost 30% operating margin over the past five years where its closest competitor within its sector comes in at just 14%.

Also, not only was the stock the clear-cut winner in terms of performance for 2011, having gained an astounding 31%, but so far in 2012 it is more than holding its own in a highly competitive environment.

In spite of all of this, the company rarely gets mentioned when discussing some of the best-run businesses on Wall Street. It seems that the market has instead turned its attention to upstart Chipotle(CMG) -- a name that has come out of nowhere to not only dominate the casual dining space, but somehow has convinced Wall Street that valuation metrics no longer matter .

McDonald's takes the disrespect in stride and focuses solely on producing solid quarterly performances while reminding investors what is possible when innovation meets sound execution. In its most recent announcement, it was business as usual as the company further affirmed investors' high regard. Why when it comes to questions regarding this stock, the only response is, "I'm loving it!"

The Quarter That Was

The company reported earnings of $1.23 per share in the first-quarter -- in line with analysts' estimates. The numbers represent an annual increase of 7% above the $1.15 reported in the same period of a year ago. Earnings grew 8% year over year -- attributable to higher comparable store sales across all regions. The company also reported revenue of $6.5 billion during the quarter -- a 7% increase over last year. Revenue from company-operated restaurants rose 7% to $4.4 billion while the same from franchise-operated restaurants jumped 8% to $2.1 billion. Total operating income grew 8% to $2.0 billion.

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Cost increases nearly mirrored sales, but slightly lagged to allow operating income to advance 8% to $2 billion. This represented a very healthy operating margin above 30% of total sales. Above all, what stood out was the company's growth internationally -- particularly from Europe as it was anticipated that the region's fiscal challenges would adversely impact the company's growth. But that was proven to not be the case as the numbers arrived much better than expected. Revenue from Europe and Russia showed growth of 5% while sales from Africa as well as the Middle East also arrived better than expected.