GW Pharmaceuticals GWPH is set to report fourth-quarter fiscal 2015 results on Dec 7, after the market closes. Last quarter, the company posted a negative earnings surprise of 23.08%. Let’s see how things are shaping up for this announcement.
Factors at Play This Quarter
The company’s key growth driver, Sativex, is approved outside the U.S. for the treatment of spasticity associated with multiple sclerosis. Sativex is currently being evaluated in a phase III study for the treatment of pain associated with cancer.
GW Pharma’s pipeline includes interesting candidates like cannabidiol-based drug, Epidiolex. Epidiolex is currently in phase III development for the treatment of Dravet syndrome and Lennox-Gastaut syndrome. The company plans to initiate another phase III study on Epidiolex for the treatment of tuberous sclerosis complex. The company is preparing to submit a regulatory application for the candidate in 2016. Epidiolex has Fast Track designation in the U.S. for the treatment of Dravet syndrome, which should expedite the review process. Epidiolex also enjoys Orphan Drug designation in the U.S. for the treatment of Dravet syndrome and Lennox-Gastaut syndrome. Investor focus is expected to remain on pipeline updates.
What Our Model Indicates
Our proven model does not conclusively show that GW Pharma is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to likely post an earnings beat. That is not the case here as you will see below.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -5.80%. This is because the Most Accurate estimate is a loss of $1.46 while the Zacks Consensus Estimate stands at a loss of $1.38.
Zacks Rank: GW Pharma currently carries a Zacks Rank #1. Although the company’s Zacks Rank #1 enhances the predictive power of the ESP, its negative ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are a few health care stocks that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat.
The Earnings ESP for AbbVie Inc. ABBV is +1.75% and it carries a Zacks Rank #3.
AmerisourceBergen Corporation ABC has an Earnings ESP of +0.8% and carries a Zacks Rank #2.
Bristol-Myers Squibb Company BMY has an Earnings ESP of +11.11% and carries a Zacks Rank #3.
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