Melius reiterates SLB stock Buy rating citing international strength By Investing.com

Melius reiterated a Buy rating and $70 price target on SLB, implying upside from the current $56.23 share price. The firm sees SLB as well positioned for an E&P spending upturn, but near-term earnings are being pressured by Middle East conflict-related disruption. SLB also reported Q1 2026 EPS of $0.52 in line with estimates and revenue of $8.72 billion, slightly above forecasts, while maintaining 56 consecutive years of dividend payments.

Analysis

The market is likely underappreciating the second-order impact of geopolitically driven capex pull-forwards: if operators accelerate FIDs in Africa and other non-Middle East basins, the beneficiaries are not just the headline service names but the entire offshore/deepwater value chain, where lead times are long and pricing power can re-emerge quickly. SLB’s relative advantage is not just mix, but contract duration and technology attach rates, which should make incremental spending flow through faster to revenue than to the broader E&P complex.

Near term, the real risk is that earnings quality looks better than earnings momentum. Conflict-related disruptions can defer activity into later quarters, creating a “catch-up” setup where the stock can rerate on backlog visibility even if current-quarter prints are noisy; that argues for watching order commentary, not just EPS. The flip side is that any de-escalation in the region would likely compress the urgency premium in international service shares before fundamentals fully recover, creating a window where consensus may have paid too much for resilience.

The market may also be missing that elevated spending outside the Middle East is structurally favorable to a few equipment and subsea suppliers that sit upstream of the service cycle. If operators prioritize deepwater and frontier exploration, the basket with the cleanest second-order leverage is often the drillship/subsea/tubular complex rather than broad E&P. Over a 6-12 month horizon, that makes this more than a single-name story: it is a regional capex rotation trade with asymmetric upside if the cycle broadens, but limited downside if the rebound merely normalizes rather than accelerates.

Key Decisions for Investors

• Go long SLB on pullbacks over the next 1-3 weeks; target a 10-15% move if backlog and international awards reaccelerate, with risk capped if Middle East stabilization removes the geopolitical urgency premium.
• Pair trade: long SLB / short US onshore service exposure (e.g., HAL or a basket proxy) for 3-6 months; the setup favors international/offshore mix over shorter-cycle North American activity, with lower sensitivity to commodity chop.
• Buy SLB call spreads 3-6 months out to express upside from a capex pull-forward without paying full delta; attractive if the market continues to discount near-term noise but rerates on 2027 exit-rate visibility.
• Add exposure to offshore equipment/subsea beneficiaries over 6-12 months; the best risk/reward is in names leveraged to deepwater FIDs where incremental activity can tighten capacity and improve pricing faster than in land services.
• If geopolitical headlines de-escalate sharply, trim 25-30% of tactical longs quickly; the main downside is multiple compression before fundamentals can fully rebase.