Biglari Restaurant Ops Look Strong and Cheap

The parent company of roadside quick service restaurants Steak 'n Shake and Western Sizzlin', Biglari Holdings (NYSE: BH  ) is a lesser-known holdings company similar in practice to an early Berkshire Hathaway, with a leader who has publicly modeled his pursuits on those of the Oracle of Omaha. In the company's most recent quarter -- which results were released this week -- there were some encouraging figures on the bottom line, though a closer look reveals little in the way of economic progress regarding the company's holdings. The most compelling element of Biglari's business remains its substantial position in another interstate icon -- Cracker Barrel (NASDAQ: CBRL  ) .

Nice numbers, but not material
On the bottom line, Biglari Holdings brought in a net investment gain of $162 million, which would, on its own, send the stock skyrocketing, as the entire market cap of Biglari is just $634 million. Unfortunately, and as noted by management, the gain is essentially immaterial to investors. It's a matter of a non-cash gain regarding the contributed securities to various investment partnerships. The amount is basically nullified to shareholders as an equal amount was taken out of 'Unrealized investment gains" -- part of the Other Comprehensive Income portion of the income statement.

This is not to say, however, that Biglari's restaurant operations were unimpressive. Third-quarter sales rose 4.1%, to $179 million, from $172 million, on the back of strong same-store sales figures from Steak 'n Shake -- up an impressive 4.2% for the quarter. Biglari now has 187 franchises on its books, as opposed to 162 one year ago, and showed a 23.8% increase in its franchise and royalty fees.

Biglari doesn't speak much when it comes to quarterly earnings statements, so there is no bullishness or bearishness coming from the company. But, when compared to some of the other fast-food operators, Steak 'n Shake looks quite strong in its latest quarter.

Still, it's Cracker Barrel that remains the value driver in the stock price.

The Cracker Barrel story
Biglari Holdings owns a sizable activist stake in biscuit-and-gravy-slinging Cracker Barrel. The former owns nearly 20% of the latter, and has battled unsuccessfully with management over capital allocation practices. Though that has not kept Biglari from earning a pretty penny on Cracker Barrel shares, which are up nearly 60% in the last 12 months.

Biglari's stake in Cracker Barrel is roughly $472 million, according to today's stock price. The investor can liquidate his position at any time he deems fit, or push for further shareholder-enhancing changes with Cracker Barrel management. Taking the Cracker Barrel stake out of the picture, an investor is buying Steak 'n Shake and Western Sizzlin at a great price.

Though Biglari's earnings may not be as out of the ballpark as they appeared at first sight, the company's restaurants are still performing well and are available, with Cracker Barrel in consideration, at a very cheap price. Investors interested in a Buffett-esque company should take a close look.

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