Morningstar - Q4 2020 - 46

26,160
10,390

30,000

26,119

Spotlight: World After COVID-19
13,665

20,000
13,609

15,770
EXHIBIT 6

12,454

8,712

5,454

4,907

10,000

3,025

2,977
Online Retailers Get a Boost Consumers'
online during the
early days
4,897 rush to buy2,429
1,930
ofRestaurants
the pandemic benefited
captured most
Retail Amazon.com
Beauty & and
Spa eBay,
Barswhich
& Nightlife
Fitnesssales.

Total Retail Sales
Food & Beverage

Nonstore Retailers
Restaurant

0

Apparel
Indexed (Feb = 100)
140
121.6
110.1 120
106.9

100

88.0
85.1

80
60
40
20
0

02/2020

04/2020

06/2020

09/2020

Source: U.S. Census Bureau. Data as of 09/30/2020.

After bottoming out earlier this year, the travel
industry is continuing to slowly recover. We
expect that recovery will ramp up meaningfully in
mid-2021 as a vaccine is widely distributed. By
2023, we think that travel and travel-related
sectors will rebound to prepandemic levels and
return to normalized levels.
In the shorter term, we expect that leisure travel
will rebound more quickly than business travel,
car-driven trips will overshadow flights, and
local travel will outperform international. In this
environment, cheaper hotels, such as economy
and midscale units, will fare better than more
expensive hotels. Because economy and midscale
hotels are often found off the interstate and
outside of cities, they align better with consumer
behavior in a world where road trips and
socially distant travel are the norm. In the hotel
sector, companies like Wyndham Hotels & Resorts
WH should benefit first. Then, as business
travel returns, chains such as Hyatt H should see
improved occupancy.
Travel cancellations (and working from home)
contributed to record low demand for energy. Not
only did oil prices hit multidecade lows, but

46

Morningstar Q4 2020

delivery surged as much as 20%, with firms such
as Domino's Pizza DPZ garnering a significant
share of the increase; however, revenue for casual
and fine dining eat-in establishments fell by 80%-
tracking with a world in which ordering food
was mainly limited to takeout and delivery orders.
By the end of June, eat-in establishments
had recouped some of their sales as restaurants
gradually reopened, but revenue remained
40% below prepandemic levels.

in April, oil briefly traded at a previously
unthinkable negative price. (Oil producers had to
pay buyers to take oil off their hands as storage
facilities filled up.) Oil prices have since recovered,
but at $40 per barrel as of Sept. 30, they
are still trading near the lower end of their range
over the past 15 years, and futures prices are
not much higher.
The implication based on the current valuation
is that oil demand will be permanently
lowered, even after the pandemic passes. While
we do incorporate a hit to demand from an
increase in working from home and lower amount
of business travel, we forecast oil prices will
recover to $55 per barrel over the long run.
As such, we think the energy sector is significantly
undervalued, with the median stock trading
at only a 0.55 price/fair value ratio ( EXHIB IT 4 ). As
of Sept. 30, 5-star-rated stocks in the energy
sector included ConocoPhillips COP, ExxonMobil
XOM, and Schlumberger SLB.
Few areas in the hospitality industry were hit as
hard as restaurants ( EXHIB IT 5 ). By the end
of March, restaurants' total revenue dropped to
50% of prepandemic levels. Demand for pizza

Fiscal stimulus provided by the $2 trillion
CARES Act, which included economic
impact payments and the Paycheck Protection
Program, helped many restaurants survive
the first few months of closure. Restaurant
owners took that time to work out how
to revise their operations to support the drastic
increase in takeaway and home-delivery
orders-a consumer trend that had already
been capturing a larger share of the restaurant
business over the past two years and that
resulted in many chains investing in digitalordering platforms, such as OpenTable
and DoorDash. We expect that demand for these
options will continue to gain strength even
after the pandemic.
For the time being, however, restaurants
are subject to depressed guest counts and higher
safety and operational expenses. To survive,
restaurants will need to adapt their business
models. Just as important, they will need
to improve their online platforms and boost their
digital engagement to reflect the new ways
that customers are using restaurants.
Casual- and fine-dining operators without
to-go platforms, strong balance sheets, or access
to temporary funding will struggle to survive,
resulting in as many as 15% of overall
U.S. restaurant locations at risk of permanent
closure-most of which will be concentrated
among smaller independents. These smaller
businesses are hard-pressed for cash and will
struggle to make it through the winter when
outdoor dining isn't possible.
Large, publicly traded companies appear
to have the financial wherewithal to survive
the downturn and invest in digital-ordering
http://www.Amazon.com
Morningstar - Q4 2020

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