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Steak ‘N Shake: The Berkshire of Burgers?

Today's Financial News - Posted December 21, 2009

Steak 'N Shake: The Berkshire of burgers?For Steak ‘N Shake (NYSE:SNS) it is a roll of the dice that could pay off big time or end in bust. Today’s a big day for the company and its investors.

By Andrew Snyder, TodaysFinancialNews.com

Baltimore – (TFN): Is he the Warren Buffett of cheeseburgers? According to Sardar Biglari’s latest chairman’s letter to investors, Steak ‘N Shake (NYSE:SNS) shareholders are in for a wild ride.

If you are one of these folks, a quick look at today’s share price tells you the action has already started. On Friday, shares of the restaurant chain closed at $14.55. Right now, they are trading for nearly $290.

What gives? How about a reverse stock split worth a 20-to-1 exchange. If you owned twenty shares on Friday, you’ve now got just one, but its’ worth twenty times as much. By forcing shares into triple-digit territory, the company is hoping to show investors the long-term potential of the stock.

Sounds a bit Buffett-esque with his $100,000 price tag for a share of Berkshire Hathaway (NYSE:BRK-A). But cheeseburgers and shakes are a far cry from railroads and insurance. If Biglari wants to compete with the big dogs and live up to his Buffett comparisons, he had better do more than a reverse split.

Buy a railroad?

Under the company’s new strategy, Biglari tells us, Steak ‘N Shake will become a holding company, buying and selling industry-related companies. At first glance, it sounds like a great plan for a company that hasn’t had much luster in the past few years.

As any Buffett fan will tell you, the key to growth lies somewhere in a pile of cash. The more you have, the better you can grow. The recent BNI purchase proves it.

While Steak ‘N Shake’s balance sheet is strong and worthy of a nod, $50 million in cash won’t buy too much growth these days, especially when the big-time competitors are sitting on billions. For Biglari, he is a mom-and-pop store going up against Wal-Mart (NYSE:WMT).

A pile of cash is one thing, but how the company got the cash is another. After all, just a year ago shareholders owned a company with just $7 million in cash. Even worse, 24 months ago they had a claim on just $1.5 million.

Biglari made waves with his recent cost cutting and increased efficiencies, but was it too much, too soon? Any company can load up on cash by foregoing critical expenditures, but soon enough the cuts will come back to haunt the bottom line.

It’s too early to tell if this is the case for Steak ‘N Shake, but to be certain, we will see the results over the next six to twelve months. If sales at McDonald’s (NYSE:MCD) are down, you can bet Steak ‘N Shake is wondering where the crowds went.

Bilgari is making bold moves. If it works, he could be a hero that earns a little-Buffett moniker. If the economy remains weak and his plans experience even the smallest of hiccups, shares could quickly fall below today’s target price.

This time next year, it could be Steak ‘N Shake looking for a buyer.


Next Article: TFN eNews 12/21/2009: Stagflation ahead for 2010?

Posted by Andrew Snyder · Filed Under Featuring..., US Stocks and Markets 

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