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  1. Home
  2. / Investing
  3. / Stocks

The Sagas of a Cruise Operator and a Burger Joint Continue

Carnival Corp. continues to sell debt and equity as it works to stay afloat, while Steak n Shake deals with problems of its own.
By JONATHAN HELLER
Feb 24, 2021 | 10:00 AM EST
Stocks quotes in this article: BH, BH.A, CCL

As the snow melts (hopefully), there's a lot of interesting things happening with a couple of the names that I follow and/or own. If this keeps up, and I hope it does, spring will be here before I can blink.

First, Carnival Corp. (CCL) , the valuation of which I have questioned, has gone back to the capital markets, again, to raise more needed funds. It was just last week that the company priced another $3.5 billion debt offering; on Monday Carnival tapped the equity markets, pricing another 40.25 million shares at $25.10, which will raise just over $1 billion.

Normally, a secondary offering would depress the current stock price, but not in this case; Carnival shares initially dipped on the news, but closed Tuesday at $26.46, 5% above the offering price. By my count, that will put shares outstanding at about 1.156 billion, which would be 68% above the 690 million shares outstanding at Nov. 30, 2019, its fiscal year-end.  Talk about dilution, not to mention (again) the increase in debt. However, the equity markets seem to be shrugging it off in hopes that there are brighter days ahead for the cruise industry. I hope that is true, but I continue to believe that CCL is grossly overpriced.

Then there's the beleaguered Steak n Shake chain of Biglari Holdings (BH) , (BH.A) . Steak n Shake has been a disaster the past four years following a dramatic comeback starting in late 2008, when Biglari took the reins. After positive same-store sales from 2009 through 2015, the slide began. Then, BH "temporarily" closed underperforming locations, of which there were many, and started a new franchising program. This one was a real head-scratcher; Biglari began selling Steak n Shake franchises to "qualified" franchisees for $10,000, plus up to 15% of revenue and 50% of store profits. The kicker is, franchisees could only own one location.

The Steak n Shake situation was coming to a head with the balance of a $220 million loan coming due in March. Because Biglari is not responsible for this debt, there was speculation the parent company would let the burger chain go into bankruptcy. However, word is that the debt was paid off last week, and Steak n Shake will avoid bankruptcy. Steak n Shake reportedly was able to buy back some of the debt outstanding for about $100 million from Fortress Investment Group, which had been acquiring the company's debt.

We have not heard the last of this story, however, as Steak n Shake is reportedly suing Fortress, alleging that the company misused confidential information in its attempt to acquire the struggling fast food operator.

BH stock, which has been an utter disappointment overall the past several years and trades at a huge discount to book value, has been on the upswing recently.  The stock now trades above pre-Covid levels. That's putting lipstick on a pig, I know.

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At the time of publication, Heller was long CCL $30 Jan. 22 puts and BH and BH-A equity.

TAGS: Rumor Mill | Litigation | Investing | Stocks | Value Investing | Consumer | Restaurants | Transportation | Real Money | Consumer Discretionary

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