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Can GW Pharmaceuticals (GWPH) Deliver a Beat in Q1 Earnings?

Zacks Equity Research

We expect GW Pharmaceuticals plc GWPH to surpass expectations when it reports first-quarter results for fiscal 2019.

However, the company’s earnings history has been dismal so far, having lagged estimates in three of the trailing four reported quarters while surpassing in one, the average miss being 6.01%. In the last reported quarter, GW Pharmaceuticals came up with a negative surprise of 11.29%.

Shares of GW Pharmaceuticals have slipped 1.1% in the past year, wider than the industry’s decrease of 6.4%.

Let’s see, how things are shaping up for this quarter to be reported.

Factors to Consider

GW Pharmaceuticals recorded net product revenues of $2.34 million in the fourth quarter and the fiscal year ending September 2018, mainly owing to Sativex sales from the ex U.S. markets.

The cannabinoid drug maker is expected to see an uptick in sales during the upcoming conference call, especially after its lead drug Epidiolex became the first cannabis-derived drug to gain an approval from the FDA last June for the treatment of patients with Lennox-Gastaut syndrome (LGS) and Dravet syndrome. The drug was subsequently launched last November and was made available in the United States by physician prescription. This makes it the first plant-derived cannabinoid prescription medicine.

Epidiolex is also under review in Europe with the decision expected in the first quarter of 2019.

On the earnings call, the company is expected to provide an update on how the Epidiolex commercial launch is progressing as well as its label expansion studies.

A phase III study evaluating Epidiolex for tuberous sclerosis complex (TSC) has completed recruitment with data expected in the first half of 2019. A supplemental new drug application on the same is expected to be filed during the second half of 2019.

Last November, GW Pharmaceuticals announced positive results from a second phase III study, which examined Epidiolex for the treatment of seizures associated with Dravet syndrome. The study met the primary endpoint and demonstrated statistically significant improvements compared with placebo in all key secondary endpoints.

Additionally, the company is working toward label expansion of Epidiolex for indications beyond epilepsy to autism.

Notably, GW Pharmaceuticals derives revenues from the sale of its commercial drug, Sativex, marketed outside the United States for treating spasticity due to multiple sclerosis (MS). The company completed three positive phase III programs in Europe and is planning to conduct a pivotal study for approval of the drug in the United States.

Why a Likely Positive Surprise?

Our proven model indicates that GW Pharmaceuticals is likely to beat on earnings this to-be-reported 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) for this to happen.

Earnings ESP: GW Pharmaceuticals has an Earnings ESP of +3.11%, representing the difference between the Most Accurate Estimate (loss of $2.88) and the Zacks Consensus Estimate (loss of $2.97). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: GW Pharmaceuticals has a Zacks Rank #3, which increases the predictive power of ESP. Thus, the combination of a positive ESP and a favorable Zacks Rank makes us reasonably confident about a likely earnings beat.

Conversely, we caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

GW Pharmaceuticals PLC Price and EPS Surprise

GW Pharmaceuticals PLC Price and EPS Surprise | GW Pharmaceuticals PLC Quote

Other Stocks That Warrant a Look

Here are some other health care stocks worth considering as our model shows that these too have the right mix of elements to beat estimates this reporting cycle.

MacroGenics, Inc. MGNX has a Zacks Rank #2 and an Earnings ESP of +8.15%. You can see the complete list of today’s Zacks #1 Rank stocks here.

NanoString Technologies, Inc. NSTG has an Earnings ESP of +4.64% and a Zacks Rank of 2.

Conatus Pharmaceuticals Inc. CNAT has an Earnings ESP of +9.72% and a Zacks Rank of 3.

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