F3Q26 Earnings Preview: Process Cycle Turning; Upgrade to OW

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F3Q26 Earnings Preview: Process Cycle Turning; Upgrade to OW

in the most likely framework for eventual de- Style Exposure

escalation. Another cease-fire remains plausible, while a sustained mutual

blockade remains a tail risk rather than their base case. The debate is therefore

gradually shifting from whether the Strait is open or closed to the terms under

which it remains open.

• 2H organic growth ramp supported by backlog up 9% y/y. To be clear, we

agree that the organic growth ramp from 0.5% in 2Q to 5% in 3Q is indeed

steep, with pricing expected to step down from +3.5% in 2Q (we model +2%

in 3Q) as EMR laps tariff-based price increases a year ago, while we note 2Q

includes a 2% headwind from software contract renewal dynamic, which goes

away in 3Q. With that said, the second-half organic growth acceleration is The authors wish to thank Chandreyee

driven by the phasing of large, long-cycle projects already in the backlog, Sengupta, of the J.P. Morgan Global

which was up 9% y/y at the end of 2Q. Recall, power orders typically have Research Center, for contributions to this

roughly two‑year lead times, translating into revenue beginning in 2H26 and report.

into 2027–2028. Life sciences and LNG have similar revenue conversion

profiles. On LNG, recent US FIDs support additional capacity to offset

potential Middle East shortfalls. In addition to this, we expect continued

momentum in Test & Measurement, where we expect book to bill to be nicely

above 1.0x in the 2H driven by robust demand in semiconductor and A&D

capital spending, supporting growth.

• We see positive process capital spending trajectory into 2027; ME repair/

restart work provides upside. In terms of the Middle East conflict,

management assumed a ~$100mm impact in the 2H (vs ~$50mm in March),