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Updated from 8:21 a.m. EDT

Its own house in order,


(MCD) - Get McDonald's Corporation Report

looks ready to take a bite out of the competition.

The fast food chain previewed a major third-quarter earnings beat Wednesday and boosted guidance, signaling that the turnaround plan implemented by late CEO Jim Cantalupo, who died of a heart attack in April, is taking hold. With evidence of better traction in the burger wars, McDonald's shares seem to hold the possibility of more upside.

The stock was recently trading up $1.14, of 4.1%, to $28.69. That's just over 15 times earnings estimates through December of 2005. Its competitors are more expensive by the same measure.


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shares cost 15.7 times estimated earnings, while

Yum! Brands

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, which owns Taco Bell, Pizza Hut and KFC, fetches 16.2 times estimates.

"They're making some inroads into


(WEN) - Get Wendy's Company Report

market share, which is part of the reason for their improvement," said John Staszak, an analyst with Argus Research who holds a buy rating on McDonald's shares. "It's a growth story there these days. They've got a new menu, new salads and extended hours and they're going just a little bit upscale to battle Wendy's in casual dining. The strategy is paying off."

The average ticket at McDonald's is about $4, but for orders that include one of the chain's new salads, the average ticket is about $8, according to Morningstar. Thanks to its significant operating leverage, sales growth is translating into fatter profits. The operating profit margin during its second quarter came in at 20.4%, compared with 19.3% a year earlier.

The company reported Wednesday morning that it expects to earn 61 cents a share in its third quarter ended Sept. 30, including a gain of 7 cents a share related primarily to the tax treatment of an international transaction. Analysts surveyed by Thomson First Call had been forecasting earnings of 49 cents a share, excluding the gain.

Meanwhile, its comparable-restaurant sales rose 7.3% in September from a year ago, reflecting a 10.6% gain in the U.S., a 7.3% gain in Asia, Africa and the Middle East, and a 0.6% decline in Europe. Overall system-wide sales rose 11.4% in September, or 8.1% in constant currency.

After pursuing a failing strategy during the recession years of 2001 and 2002 of driving sales growth through new restaurant openings, McDonald's has sold off underperforming sites and is now concentrating on increasing sales and profitability from existing stores by overhauling its menu and other measures. The company plans to add 450 net new stores in 2004, down from a high of 2,400 in 2000. The store base in 2004 will be about 31,000, up from 14,000 just 10 years ago.

"By keeping our focus on our customers, McDonald's competitive position is strengthening," the company said in a statement Wednesday. "Driven by robust U.S. performance and our Plan to Win, worldwide comparable sales have been positive for six consecutive quarters and our profitability continues to improve."

Along with its shifting focus in an increasingly saturated market, Morningstar Analyst Carl Sibilsky expects McDonald's to return more than $1.5 billion, or $1.18 a share, to shareholders this year in the form of dividends, stock purchases, and debt reduction.

"That's a combination we wouldn't pass up," Sibilsky wrote in a research note.