Houlihan Lokey’s SWOT analysis: diversified model bolsters stock amid market shifts

Houlihan Lokey, Inc. (NYSE:HLI), a global investment bank with a market capitalization of $12.06 billion, has demonstrated resilience and growth in a complex market environment. According to InvestingPro, the company maintains a "GREAT" financial health score of 3.02, supported by strong profitability and cash flow metrics. This comprehensive analysis examines the company’s performance, strategic initiatives, and market position, providing insights for investors considering HLI stock.

Company Overview and Financial Performance

Houlihan Lokey has consistently delivered strong financial results, with its most recent quarter showcasing the company’s ability to thrive in challenging conditions. For the fourth quarter of fiscal year 2025, HLI reported adjusted earnings per share (EPS) of $1.96, surpassing analyst estimates of $1.58 and consensus expectations of $1.62. This impressive performance was part of a broader trend, with the company achieving 24.8% revenue growth over the last twelve months and maintaining a robust gross profit margin of 94.38%. The strong results were driven by higher-than-anticipated revenues of $666 million, with notable strength in Corporate Finance and Restructuring segments. InvestingPro data reveals that six analysts have recently revised their earnings estimates upward for the upcoming period, suggesting continued momentum.

The company’s compensation ratio remained steady at 61.5%, while a lower tax rate contributed to the EPS beat. This financial success is particularly noteworthy given the complex macroeconomic and market environment, highlighting HLI’s adaptability and robust business model.

Business Segment Analysis

Corporate Finance

The Corporate Finance segment has shown remarkable growth, particularly outside the United States. In the fourth quarter of fiscal 2025, this division saw a 44% year-over-year increase in revenues. Analysts note that the middle market M&A activity, which is a key focus for HLI, is expected to remain resilient amid market volatility. This resilience is attributed to increased transaction sizes and fees, positioning the segment well for continued growth.

Restructuring

HLI’s Restructuring business has entered fiscal year 2026 with strong momentum. Analysts project "elevated" revenues for this segment in the coming fiscal year, supported by high demand and the company’s capacity to handle increased workload. The robust performance of this division underscores HLI’s ability to capitalize on various market conditions, as restructuring services often see increased demand during economic uncertainty.

Financial and Valuation Advisory (FVA)

The FVA segment closed fiscal year 2025 on a positive note, driven by strong demand for portfolio valuation services. This division’s steady growth has been bolstered by recent acquisitions, such as Prytania Solutions, which is expected to enhance HLI’s technological capabilities in structured product valuation. Analysts anticipate that the FVA business will continue to benefit from improvements in M&A and financing markets.

Strategic Initiatives and Acquisitions

Houlihan Lokey has pursued a growth strategy combining organic expansion and strategic acquisitions. The company has significantly increased its senior banker headcount, growing by 69% since the end of 2019 when including the acquisition of GCA. This expansion in talent positions HLI well for future market cycles and enhances its competitive edge.

Management has emphasized that mergers and acquisitions remain a strategic priority, with ongoing dialogues for potential acquisitions. The company’s strong capital position, with approximately $903 million in unrestricted cash and equivalents as of the latest report, provides ample resources for these strategic initiatives.

Market Position and Competitive Landscape

HLI has outperformed both its peer group and the broader market year-to-date, delivering a one-year total return of 29.18%. The stock currently trades at a P/E ratio of 28.47, and while analysts note that it’s trading at approximately 21 times the calendar year 2026 estimated EPS, InvestingPro’s Fair Value analysis suggests the stock is currently overvalued. However, the company’s strong fundamentals, including a 20% return on equity and consistent dividend growth for 10 consecutive years, may justify premium valuations compared to peers such as Perella Weinberg (NYSE:PWP) and PJT Partners (NYSE:PJT).

The company’s diversified business model, with strengths in middle market M&A, restructuring, and financial advisory services, positions it well to capture market share across various economic conditions. However, some analysts have expressed concern about HLI’s slower Managing Director (MD) hiring growth compared to peers, which could potentially impact its ability to capture market share in a rising M&A activity environment.

Outlook and Future Prospects

Management has provided an optimistic outlook for each business line entering fiscal year 2026. The company’s diversified revenue streams, particularly the expansion of its Capital Solutions business (formerly Capital Markets), are expected to contribute to future growth. Analysts anticipate that HLI will benefit from the ongoing recovery in industry-wide activity levels, leveraging its scale and strategic growth initiatives.

However, investors should be aware of potential headwinds, including the inherent seasonality of the business and the uncertain impact of market dynamics on revenues. Additionally, the cyclical nature of the restructuring market may lead to shifts in the business landscape over time.

Bear Case

How might the cyclical nature of restructuring affect HLI’s performance?

While Houlihan Lokey’s restructuring business is currently strong, with elevated revenues expected in fiscal 2026, the cyclical nature of this segment poses a potential risk. During periods of economic stability and growth, demand for restructuring services typically decreases. This cyclicality could lead to fluctuations in HLI’s revenue and profitability, particularly if other segments do not compensate for any downturn in restructuring activity.

Moreover, the company’s current success in restructuring may be partly attributed to the unique economic conditions resulting from the global pandemic and subsequent recovery. As these conditions normalize, HLI may face challenges in maintaining the same level of restructuring revenues, potentially impacting overall financial performance.

Could slower MD hiring growth impact HLI’s market share in rising M&A activity?

Analysts have noted that Houlihan Lokey’s Managing Director (MD) hiring growth has been slower compared to some peers. In the competitive landscape of investment banking, the number and quality of senior bankers can significantly influence a firm’s ability to win mandates and execute deals. With M&A activity expected to rise, HLI’s relatively slower MD growth could potentially limit its ability to capture market share.

This concern is particularly relevant in the context of increasing deal sizes and the importance of relationships in securing high-value transactions. If HLI cannot match the senior talent acquisition pace of its competitors, it may find itself at a disadvantage in pitching for and winning larger, more complex deals, potentially constraining its growth in a rising market.

Bull Case

How does HLI’s diversified revenue stream position it for future growth?

Houlihan Lokey’s diversified business model, encompassing Corporate Finance, Restructuring, and Financial and Valuation Advisory services, provides a significant advantage for future growth. This diversification allows HLI to adapt to varying market conditions and economic cycles, potentially smoothing out revenue fluctuations and providing multiple growth avenues.

The company’s strong performance across all business lines, even in challenging market conditions, demonstrates the resilience of this diversified approach. For instance, while Corporate Finance benefits from increased M&A activity, the Restructuring segment can provide a counterbalance during economic downturns. The expansion of the Capital Solutions business further enhances this diversification, potentially opening new revenue streams and market opportunities.

This balanced portfolio not only mitigates risks but also positions HLI to capitalize on various market trends simultaneously, potentially leading to more consistent growth and financial performance over time.

What advantages does HLI’s strong cash position provide in the current market?

Houlihan Lokey’s robust capital position, with approximately $903 million in unrestricted cash and equivalents, provides several strategic advantages in the current market environment. This strong cash position offers flexibility and opportunities for growth, both organically and through acquisitions.

In a market where many companies may be facing financial constraints, HLI’s liquidity allows it to pursue strategic acquisitions opportunistically. This can enable the company to expand its service offerings, enter new markets, or acquire valuable talent and intellectual property. The ability to make such moves can significantly enhance HLI’s competitive position and accelerate its growth trajectory.

Furthermore, this financial strength provides a buffer against market uncertainties and allows HLI to continue investing in talent acquisition and technology improvements. It also supports the company’s ability to return value to shareholders through dividends and share repurchases, as evidenced by the recent increase in dividend payments.

SWOT Analysis

Strengths:

• Diversified business model across Corporate Finance, Restructuring, and FVA
• Strong financial performance with consistent revenue growth
• Robust capital position for strategic investments and acquisitions
• Established presence in middle market M&A

Weaknesses:

• Potential slower MD hiring growth compared to peers
• Exposure to cyclical market conditions, particularly in restructuring

Opportunities:

• Expansion of global presence, especially in Corporate Finance
• Growth in Capital Solutions (formerly Capital Markets) business
• Potential for strategic acquisitions to enhance capabilities and market share
• Technological advancements through acquisitions like Prytania Solutions

Threats:

• Intense competition in the investment banking sector
• Market volatility and economic uncertainties affecting deal flow
• Potential regulatory changes impacting the financial services industry
• Cyclical nature of restructuring business may lead to revenue fluctuations

Analysts Targets

• JMP Securities: Market Perform (no specific target), May 8th, 2025
• Morgan Stanley (NYSE:MS): Underweight, $200.00 price target, December 9th, 2024
• JMP Securities: Market Perform (no specific target), October 31st, 2024

This analysis is based on information available up to May 8th, 2025. For the most comprehensive analysis of HLI, including additional ProTips, detailed financial metrics, and expert insights, explore InvestingPro’s exclusive research report. The platform offers valuable tools for evaluating HLI’s investment potential, including Fair Value estimates, health scores, and peer comparison analytics, helping investors make more informed decisions.

InvestingPro: Smarter Decisions, Better Returns

Gain an edge in your investment decisions with InvestingPro’s in-depth analysis and exclusive insights on HLI. Our Pro platform offers fair value estimates, performance predictions, and risk assessments, along with additional tips and expert analysis. Explore HLI’s full potential at InvestingPro.

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