Secular Trends Will Spark Global Cross-Border Deal Momentum

Key Takeaways

• Strength in both M&A and restructuring, combined with higher deal fees and resilient revenue, is driving sustained margin and earnings growth.
  
• Expansion into alternative assets, global markets, and specialized advisory enhances market share, fee quality, and long-term revenue opportunities.
  
• Automation, cyclical restructuring demand, slow global expansion, regulatory tightening, and intensified competition may all restrict Houlihan Lokey's growth and profitability.

Catalysts

An investment banking company, provides merger and acquisition (M&A), capital market, financial restructurings and liability management, and financial and valuation advisory services worldwide.

• While analyst consensus expects Corporate Finance revenues to benefit from recovering M&A and private equity activity, this may be substantially understated as leading indicators suggest a post-Labor Day acceleration in deal activity; combined with rising average deal fees and larger transaction sizes, this could push top-line revenue growth well beyond current forecasts in both the near and medium term.
  
• Analysts broadly believe restructuring revenue will remain elevated due to persistent high debt levels and macro uncertainty, but the resilience seen in recent quarters suggests this segment may have established a permanently higher base even during cyclical upswings, materially lifting normalized earnings and stabilizing overall margin profiles.
  
• The integration of the secondary transactions business into Houlihan Lokey's Capital Solutions group, together with strategic acquisitions and robust senior hiring, positions the firm to capture a disproportionate share of the rapidly expanding alternative asset and private market advisory space, resulting in sustained double-digit revenue growth and improvement in average fee economics.
  
• Houlihan Lokey's ongoing global expansion, especially across Europe and Asia, enables greater cross-border deal flow and diversification by sector and geography; as global M&A activity accelerates due to demographic shifts and intergenerational transfers, this geographic breadth should drive greater addressable market share and higher net margins.
  
• Rising regulatory, technological, and ESG complexities in global dealmaking are increasing client demand for independent, specialized advisory; Houlihan Lokey's size, agility, and deep sector expertise make it uniquely positioned to capture premium mandates, resulting in higher fee realization and upside to long-term margin and earnings growth.

Houlihan Lokey Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Houlihan Lokey compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Houlihan Lokey's revenue will grow by 14.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 16.5% today to 17.7% in 3 years time.
• The bullish analysts expect earnings to reach $648.9 million (and earnings per share of $9.31) by about August 2028, up from $408.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 32.5x on those 2028 earnings, down from 34.5x today. This future PE is greater than the current PE for the US Capital Markets industry at 27.1x.
• Analysts expect the number of shares outstanding to grow by 1.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.08%, as per the Simply Wall St company report.

Houlihan Lokey Future Earnings Per Share Growth

Risks

• Industry-wide adoption of automation and AI-driven deal execution threatens the need for highly specialized advisory services, which could erode Houlihan Lokey's differentiated value proposition and put long-term pressure on its fee-based revenue and operating margins.
  
• The firm's exposure to financial restructuring makes its revenue base vulnerable to economic cycles and could become a risk if default rates stay persistently low or if monetary policy shifts lead to fewer distressed situations, thus decreasing restructuring revenue and possibly impacting earnings stability.
  
• Slower international expansion relative to major peers and the continued outperformance of the U.S. market over EMEA suggests that Houlihan Lokey may have limited ability to capture global growth opportunities, which could cap top-line revenue growth in the long-term.
  
• Heightened regulatory scrutiny and tightening around cross-border transactions and M&A globally may result in a reduction in deal volumes, negatively impacting Houlihan Lokey's transaction pipeline and its ability to generate consistent revenue growth.
  
• The rising market share and scale advantage of mega-banks and leading boutiques, combined with digital platforms that enable direct capital raising, may marginalize mid-sized players like Houlihan Lokey and compress both win rates and average fees, ultimately pressuring overall revenues and net profit margins.

Valuation

• The assumed bullish price target for Houlihan Lokey is $232.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Houlihan Lokey's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $232.0, and the most bearish reporting a price target of just $166.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $3.7 billion, earnings will come to $648.9 million, and it would be trading on a PE ratio of 32.5x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $200.43, the bullish analyst price target of $232.0 is 13.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.