Walt Disney (DIS 1.54%) recently posted its third-quarter earnings digest, and all is good in the neighborhood for the world-class entertainment business. But its stock price has fallen 21% year to date, underperforming the S&P 500, which is down just 10.4% in the same time frame.
So far in 2022, stocks have felt the effects of high inflation, rising interest rates, and the war in Ukraine. As a result of the ongoing market correction, many unique buying opportunities have emerged for patient, long-term investors. Though it might not be easy to see right now, buying at today's lows could lead to huge gains over the long run.
Keeping that in mind, let's dive into Walt Disney's current situation to determine if it's a logical investment.
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Smooth sailing for the entertainment business
Walt Disney posted third-quarter earnings on Aug. 10, delivering an impressive performance despite concerns that high inflation would undermine consumer spending. Its total sales expanded 26.3% year over year to $21.5 billion, finishing largely in line with Wall Street estimates, and its adjusted earnings per share (EPS) of $1.09, equal to 36.3% growth, topped forecasts by 10%.
Its Disney Media and Entertainment Distribution segment -- which includes its linear networks, direct-to-consumer streaming services, and content sales/licensing -- grew revenue by 11.3% to $14.1 billion.
Its subscription services -- Disney+, ESPN+, and Hulu -- climbed 27.3% year over year to 221.1 million paid subscribers, driven by a 31% and 53% uptick in Disney+ and ESPN+ paid members, respectively.
The highlight of the quarter, however, was its Disney Parks, Experiences, and Products revenue, which surged 70.3% to $7.4 billion, versus $4.3 billion in the same quarter a year ago. That growth should put to rest some of the concerns investors had about the strength of the consumer going into the earnings call.
On top of the robust growth, the company's operating margin soared 259 basis points to 16.6%, again led by its Disney Parks, Experiences, and Products category. For the full year, Wall Street analysts expect Walt Disney's total revenue to increase 38.2% year over year to $82 billion, and its earnings per share to skyrocket 95% to $3.94. Next year, analysts are forecasting another 11.6% rise in sales and a 39.1% surge in EPS. Thus, it's safe to say that the entertainment business is handling current macro conditions just fine.
Should investors pounce on Walt Disney stock?
The future looks bright for the business. Not only was its third-quarter performance positive, but the stock's pullback so far in 2022 also grants investors a very nice margin of safety. They should brace themselves for a choppy stock market for the foreseeable future, but it's important to remain focused on the long term. And in that case, Walt Disney appears like a no-brainer buy right now.
