Initiated 2026-09-25 · Price $129.35 (close 2026-09-25, stockanalysis.com) · Mkt cap $9.04bn · Financials / investment banking & advisory · Model: verified

Rating: Hold — Conviction: Medium

Houlihan Lokey is the highest-volume independent M&A adviser and the largest restructuring adviser, and it carries no funded debt. It has also just had its weakest quarter in three years: Corporate Finance revenue fell 24% as large-fee deals slipped. Management calls the slowdown a timing issue and points to a record pipeline. After a 37% fall over the past year, the price sits almost exactly on the model's base case, and the bull and bear cases are roughly equal distances away. That is a Hold. The next two quarters of CF closings decide which way it breaks.

Model value range vs price
Bear $73.02Base $123.82Bull $185.34Price $129.35

Business overview

HLI sells advice rather than balance sheet. FY2026 (year to March 2026) revenue was $2.62bn:

Three variables drive earnings:

Competition

Bull case

  1. The CF backlog converts. Management cites a "record pipeline, backlog and new-business activity" and says Q1 deals were delayed, not lost. FY2025 revenue rose 25% off the FY2024 trough. Plays out if sponsor exits and consumer and software deals resume in H2 FY2027. Model: rev_growth
  2. Operating leverage returns. With comp pinned at 61.5% adjusted, margin comes from non-comp: 13.9% of revenue in FY2026, 19.5% in Q1 FY2027. A revenue recovery on a fixed cost base pushes EBITDA margin back toward the mid-20s. Plays out if quarterly revenue gets back above $650mm. Model: ebitda_margin
  3. The multiple recovers. At 14.5x FY2026 EBITDA, HLI is below the level its franchise and net cash have usually earned. Plays out if two quarters of CF growth restore confidence. Model: exit_ev_ebitda

Bear case

  1. This is a cycle, not a delay. Q1 CF revenue fell 24% as closings slowed in consumer, software (AI-driven valuation resets) and European mid-market deals. FY2023's precedent was −20% total revenue with restructuring only partly offsetting. Plays out if the 10Y stays above 5% and sponsor financing stays expensive. Model: rev_growth
  2. Margins stay squeezed. The Q1 EBITDA margin was 16.8%, against 21.8% in FY2026. A sticky comp ratio and adjusted non-comp up 6% on lower revenue mean a slow recovery barely helps margin. Plays out if HLI keeps hiring MDs and making acquisitions (Intrepid, 32 staff) into a soft tape. Model: ebitda_margin
  3. A de-rating toward Evercore. If growth stays flat, the market could stop paying a premium to Evercore's 13.6x forward P/E. Plays out if FY2027 revenue lands below the $2.63bn consensus. Model: exit_ev_ebitda

Valuation & balance sheet

Metric (definition) Current Own history (range or 5y avg) Peers Source, as-of
Forward P/E (consensus adjusted EPS) 16.8x n/a (unverified) Evercore 13.6x · PJT 18.1x · Moelis 16.5x stockanalysis.com, 2026-09-25
EV/EBITDA, model basis (EV $8,243mm = market cap − $797mm cash and investments; no funded debt; leases excluded) 14.5x FY2026 · 15.0x TTM EBITDA margin FY2022–FY2026 20.4–29.1% n/a (peers show no EBITDA on this source) model-inputs.json; Q1 FY2027 release
EV/Sales (TTM, aggregator EV) 3.45x n/a (unverified) Evercore 2.25x · PJT 3.38x · Moelis 3.04x stockanalysis.com, 2026-09-25
P/FCF (TTM) 18.5x (5.4% yield) FCF $86mm (FY2023) to $809mm (FY2025) Evercore 6.6x · PJT 9.4x · Moelis 10.9x (bonus-timing sensitive) stockanalysis.com, 2026-09-25

Model-implied value range (from model-summary.json; generic module, Gordon-growth DCF and exit-EV/EBITDA DCF, midpoints): Bear $73.02 · Base $123.82 · Bull $185.34 per share, i.e. implied returns of −43.5% / −4.3% / +43.3% vs $129.35. These ranges show how the bull and bear drivers translate into value; they are not price targets.

Balance sheet:

Model note: tier full, status built, verification verified (3,206 formula cells matched in LibreOffice). No assumptions without basis. Scenario consistency is OK on all 14 rows.

Scenario stress test

Reasoned from the bull/bear drivers above. The model column comes from the scenario overlays (Base case + shock).

Scenario Effect Mechanism Magnitude Model Δ value vs Base ($/sh)
S1 Fast equity crash − Signings pause while valuations reset; financials de-rate Med −$14.19
S2 Slow bear / recession − CF falls as in FY2023 and restructuring offsets only part. Milder than Base − Bear ($50.80) because it lasts two years, while the bear case compounds a lower base High −$32.40
S3 Rapid rate shock − Costlier acquisition financing slows sponsor M&A and the discount rate rises; restructuring demand comes later Med −$17.52
S4 Slow rate grind − Higher discount rate; the sponsor drag is roughly offset by liability-management work Low −$5.14
S5 Soft-landing cuts + Cheaper financing reopens sponsor exits; the backlog converts High +$25.66
S6 Recession-driven cuts − CF falls and restructuring mandates cushion it; lower discount rate Low −$8.78
S7a Credit liquidity shock − Financing markets shut and closings slip; restructuring fees bill later Low −$9.76
S7b Slow default cycle + Largest restructuring practice adds fees without a CF collapse Low +$6.91
S8 Stagflation − Uncertainty delays M&A over three years; higher discount rate Med −$18.53
S9a Dollar spike − Europe and Asia-Pacific fees translate lower Low −$1.20
S9b Dollar slide + Mirror of S9a Low +$1.20
S10 Melt-up + Rising valuations and tight spreads drive exits; financials re-rate Med +$14.50
S11 Energy supply shock − Middle East instability was already a Q1 CF headwind Low −$4.93
S12 Mega-cap/AI derating − Software valuation resets (a Q1 headwind) delay tech M&A Low −$6.11

Currently active/on watch per the playbook:

Model value change vs Base, by scenario
S2 Slow bear / recession−$32.40S8 Stagflation−$18.53S3 Rapid rate shock−$17.52S1 Fast equity crash−$14.19S7a Credit liquidity shock−$9.76S6 Recession-driven cuts−$8.78S12 Mega-cap/AI derating−$6.11S4 Slow rate grind−$5.14S11 Energy supply shock−$4.93S9a Dollar spike−$1.20S9b Dollar slide+$1.20S7b Slow default cycle+$6.91S10 Melt-up+$14.50S5 Soft-landing cuts+$25.66

What would change the call

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