Is GW Pharma (GWPH) Likely to Beat Earnings Estimates in Q4?

We expect GW Pharmaceuticals plc GWPH to beat expectations when it reports fiscal fourth-quarter 2017 results on Dec 4, before market opens.

GW Pharma’s share price has increased 7.9% so far this year compared with the industry’s gain of 23.2% in the same time frame.

Factors at Play

GW Pharma’s growth is solely dependent on Sativex, which is marketed outside the United States for the treatment of spasticity due to multiple sclerosis. The company has an agreement with Japan-based Otsuka Pharmaceutical for commercializing Sativex in the United States. The drug is expected to continue the growth trend of the past several quarters this time around as well.

GW Pharma has made significant progress with its lead cannabinoid pipeline candidate, Epidiolex for the treatment of Lennox-Gastaut syndrome ("LGS") and Dravet syndrome. Subsequent to the quarter in October, the company submitted a new drug application for Epidiolex to the FDA seeking approval in both the indications.

The company also plans to file for regulatory approval in the EU for Epidiolex in LGS and Dravet syndrome this year. It is also gearing up for the launch of the candidate, which is expected to increase operational expenses.

The company is also developing GWP42006 (CBDV) in a phase II clinical trial for epilepsy, with data expected to be announced soon. The candidate has received orphan drug designation from the FDA for treating Rett syndrome.

Investors are expected to focus on the company’s commercialization plan for Epidiolex upon potential approval at the upcoming earnings release. An update on progress of GWP42006 development is also expected.

Surprise History

GW Pharma’s performance over the last four quarters has been mixed, with the company surpassing the Zacks Consensus Estimate twice and missing the same on two other occasions. The average positive surprise over the last four quarters is 12.46%. However, the company missed estimates last quarter, resulting in a negative earnings surprise of 19.65%.

Why a Likely Positive Surprise?

Our proven model shows that GW Pharma is likely to beat estimates this quarter. This 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 be able to beat estimates. But that is not the case here, as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate (loss of $1.37) and the Zacks Consensus Estimate (loss of $1.72), stands at +20.41%. This is a leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: GW Pharma currently has a Zacks Rank #3. The combination of a positive Earnings ESP and a favorable Zacks Rank makes us reasonably confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks That Warrant a Look

Here are some other health care stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat next quarter.

Catabasis Pharmaceuticals, Inc. CATB has an Earnings ESP of +1.87% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sangamo Therapeutics, Inc. SGMO has an Earnings ESP of +9.49% and a Zacks Rank #2.

Ligand Pharmaceuticals Incorporated LGND has an Earnings ESP of +2.89% and a Zacks Rank #3.

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