Quick Take on F1Q27 (C2Q26) Earnings Result: Ongoing Headwinds In Middle Market M&A

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Quick Take on F1Q27 (C2Q26) Earnings Result: Ongoing Headwinds In Middle Market M&A

UpdateMmiss this quarter. Continued volatility in the energy markets and both private

credit/software are feeding strong activity levels, and HLI is well suited to

execute on software-related RX activity that should show through in the

coming quarters. Macro factors weighing on the CF business bode well for

the RX outlook. We model a modest increase in RX revenue y/y (up 1% vs 6%

prior), but see room for upward revisions to the extent this environment

persists.

• FVA beat was a bright spot. FVA of up 13% y/y beat consensus of up 7%,

aided by momentum in large cap M&A. We believe this sets the business up

for a higher trajectory throughout the rest of FY27, as F1Q is typically

seasonally the weakest quarter. The recently-announced Morningstar

partnership was characterized as a 'baby step' to longer-term objectives with

de minimus near-term revenue benefits.

• Non-comp expense growth guide remains, a modest positive vs peer

guides. Non-comp expenses of up 6% y/y beat consensus of up 11% y/y.

While we partially attribute this to weaker revenue, management reiterated

the existing guide of similar y/y growth in F27 as in F26 (~11%), contrasting

with peers that raised the non-comp growth outlook.

What We Changed: Lowering F2027 EPS by -86c (-11%) to $7.22, mainly on lower

Corporate Finance and Restructuring revenue, partially offset by lower comp

expenses, lower tax rate, and higher FVA revenue. Lowering F2028 EPS by -56c (-

5%) to $9.86, mainly on lower Corporate Finance revenue, partially offset by lower

comp expenses. Lowering PT by -$10 (-5%) to $177, applying an 18x P/E to F2028

EPS. Target multiple is unchanged.

"New vs Old" and "Actual vs. Estimates" variance analysis tables inside.