Casual traders probably know Biglari Holdings (NYSE:BH) as a restaurant franchise owner and operator. More specifically, BH stock investors will typically view the company as the owner of fast-food restaurant chain Steak n Shake.
If you’re a fan of nostalgic diner-style restaurants, then you might appreciate Steak n Shake, which has been around since 1939. The problem is, we’re living in a modern era in which the novel coronavirus crisis is wreaking havoc on restaurants.
Sadly, 57 Steak n Shake restaurant locations were permanently closed as the pandemic rattled the American fast-food industry. Does this mark the beginning of the end for this iconic throwback restaurant chain?
Not necessarily, as a business model change could signal a turnaround for Steak n Shake. Besides, there’s more to Biglari Holdings as a value-added acquisition highlights just how diversified this company really is.
The Lowdown on BH Stock
One might assume that BH stock would be in the gutter because of the pandemic. Yet, it’s never a good idea for stock traders to make assumptions without checking the facts.
The bears and skeptics should know that BH stock has staged an impressive comeback after touching its 52-week low of $37.85 in March. In fact, there were a couple of times in August when the stock breached the important $100 level.
That level is still providing resistance as BH stock was trading at around $86 on Nov. 11. Reclaiming $100 should be a major objective for the bulls this quarter. They could conceivably achieve this with one strong push to the upside.
Counter Service Model
There have been many changes in the restaurant business due to the onset of Covid-19. Some restaurants have pivoted partially or entirely to a home delivery model, for example.
Apparently, Biglari Holdings isn’t necessarily prepared to shift Steak n Shake’s service model to home delivery. That’s understandable as this type of change might be too abrupt for a nostalgic diner.
Still, not changing at all isn’t an option during the pandemic. So, Biglari Holdings announced its decision to move Steak n Shake towards a counter-service model.
I feel that this is a fair compromise. I also tend to concur with Biglari Holdings CEO Sardar Biglari that the full-service model is too costly and inefficient nowadays.
“The combination of labor-intensive, slow production with high-cost table service has led our overall labor costs to be six to eight percentage points above those incurred by our competitors,” elaborated Biglari.
Insuring Against a Troubled Industry
Does the service model change for Steak n Shake guarantee success for this classic restaurant chain? Of course not. Thankfully, Biglari Holdings has more subsidiaries than Steak n Shake.
In March, Biglari Holdings acquired the stock of insurance specialist Southern Pioneer, a company that focuses on “garage liability insurance, commercial property coverage, as well as homeowners and dwelling fire
insurance coverages.”
Ironically enough, this is a type of insurance for Biglari Holdings. Acquiring businesses outside of the fast-food niche could help the holding company to weather the storm if Steak n Shake continues to struggle.
Southern Pioneer isn’t Biglari’s only insurance-market stake. The holding company also owns First Guard Insurance Company, which specializes in commercial truck insurance.
For even more diversification, Biglari also owns Southern Oil Company as well as entertainment periodical Maxim. Plus, Biglari has (pardon the pun) a stake in steak restaurant Western Sizzlin.
That’s a fairly broad array of subsidiaries, and it ought to provide a buffer for BH stock holders if Steak n Shake’s modified service model isn’t a resounding success.
The Final Word
Investing in BH stock could give you access to the future profits of an American family diner that’s been around for decades.
Just as importantly, you’ll get to position yourself with a holding company that’s diversified enough to protect the shareholders against the restaurant industry’s pandemic-driven problems.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
