Biglari's Valuation Puzzling as Cracker Barrel Soars

NEW YORK ( TheStreet) - Cracker Barrel ( CBRL) did it again. Another solid earnings report sent shares up 6.5% Monday, and while the market fell Tuesday, Cracker Barrel was up another 0.7%.

My favorite country restaurant chain beat analysts' estimates on revenue and earnings, and its stock is trading at an all-time high, making a push toward the $100 mark. The company also increased its quarterly dividend 50% to 75 cents, which equates to a 3.1% yield. Since April 2012, the company has tripled its dividend. CBRL Chart CBRL data by YCharts

Cracker Barrel has also strengthened its balance sheet: The company ended the latest quarter with $400 million in debt, down from $900 million in debt in 2006. Still real estate rich, Cracker Barrel owns more than 400 of its locations. It's been an attractive story over the years, and some institutional buyers have noticed.

Take Biglari Holdings ( BH), which has amassed a 20% stake in Cracker Barrel.

CEO Sardar Biglari has been vocal about changes he believes need to be made at Cracker Barrel. He has twice sought seats on the company's board of directors and lost both times.

Cracker Barrel wants Biglari to go away. It adopted a poison pill that limits outside ownership to 20%, and in February, it offered to buy Biglari's stake at then market prices. Biglari declined, and that stake, worth about $310 million at the time of the offer, is now worth $456 million.

Sardar Biglari may look like a genius for taking a large position in Cracker Barrel, but his issues with the company have all but fallen on deaf ears. Whether he is right or wrong, it is difficult to build a case calling for change when Cracker Barrel's shares are up more than 50% year to date.

Shares of Biglari, meawhile, are up just 5% year to date. Considering that Biglari's market cap is just $505 million, and the company owns $456 million worth of Cracker Barrel, something is wrong. Biglari's valuation places a very low value on the firm's other assets, which include the Steak n Shake and Western Sizzlin' restaurant chains, and other investments.

When I wrote about this issue in a February column ( Profiting from the Cracker Barrel Feud), Biglari's market cap was $472 million, and it owned about $310 million worth of Cracker Barrel shares. Four months later, the needle has barely moved for Biglari shares, but Cracker Barrel is up more than 47%. Granted, Biglari is an underfollowed name, unknown by many investors, and its stock price at more than $400 may be cost prohibitive. But the story, in terms of value, is increasingly interesting.

As a postscript to this story, when Cracker Barrel made its offer in February to buy back Biglari's stake, Sardar Biglari suggested that Cracker Barrel should instead pay a $300 million special dividend. Cracker Barrel didn't take his advice, and the richer dividend payout means that Biglari would now be collecting more than $14.2 million in Cracker Barrel dividends annually. That's a considerable amount given Biglari's current market cap.

At the time of publication the author was long on Biglari.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
At the time of publication, Heller was long XXXX.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.