Initiate at Buy with $164 PO: Calm before the storm

Research evidence excerpt

Initiate at Buy with $164 PO: Calm before the storm

Best-of-breed middle market franchise

We initiate coverage on Houlihan Lokey (HLI) with a Buy rating and a $164 price

objective, implying 20% upside potential from current levels. With shares of Houlihan

trading at just 17x our $8.04 FY27 EPS estimate we believe that the market is not

pricing the potential for a rebound in middle market investment banking activity.

Consensus estimates suggest only modest acceleration in growth of Houlihan’s advisory

revenue (we estimate 86% of revenue came from middle market transactions in FY26)

with a forecast for 16% growth on average growth over the next two years vs 15%

annual increase over the last 4 quarters.

Tough 1Q priced-in, improving 2H27/2028 is not

We expect 1Q results to remain challenged due to the overhang on M&A activity from

the Iran conflict and AI-related disruption concerns. However, we believe this weakness

is largely reflected in the stock, which trades at 17x forward P/E, a 3-turn discount to its

historical average. Unlike the Wall Street majors, where investors continue to debate

peak earnings and peak multiples, we see the opposite setup at HLI: potential upside to

both revenue and EPS estimates alongside potential for P/E expansion.

HLI has underperformed peers year-to-date as the anticipated rebound

in middle market and sponsor activity continues to be delayed.

Exhibit 1: HLI has been the worst performer in its peer set YTD Exhibit 2: HLI trading closer to 1 std. dev. below history on P/E

YTD price performance, 12/31/25 = 100 Rolling NTM P/E, 2021-2026

HLI EVR MC LAZ PIPR 120

Median, 20.4

10 70

12-25 01-26 02-26 03-26 04-26 05-26 06-26 2021 2022 2023 2024 2025 2026

Source: BofA Global Research, Bloomberg Source: Bofa Global Research, Bloomberg