HOULIHAN LOKEY, INC. (HLI) stock intrinsic value fair value estimate & owner earnings analysis

Houlihan Lokey is an independent investment bank that earns fees for advice. It does not lend, trade securities or publish research. It has three businesses. Corporate Finance covers mergers, acquisitions and capital raising and brought in $1.74 billion of revenue in the year to March 2026. Financial Restructuring advises distressed companies and their creditors ($529 million). Financial and Valuation Advisory provides fairness opinions and valuations ($344 million). Total revenue was $2.62 billion, about 68% from the United States and 32% from abroad. The business needs almost no capital: capital spending runs at about 1.5% of revenue, and it has no borrowed money (its $150 million credit line was undrawn at March 2026). Nearly all the cash it earns goes back out as dividends, share buybacks, or payments to cover employees' taxes on share awards. Its real assets are its 354 managing directors and the client relationships they hold. How we measured earnings. We start from operating cash flow and strip out swings in working capital. The biggest swing is the timing of annual bonus payments, which moved cash flow by several hundred million dollars from one year to the next. We subtract stock-based pay as a real cost ($201 million last year). We also count office rent and bad debts as real costs, even though the cash-flow statement partly adds them back. On that basis the business earned about $6.42 per share in fiscal 2026, $5.90 in 2025, $3.71 in 2024, $3.91 in 2023 and $6.26 in 2022. Deal activity is cyclical, so we take the middle of those five years, $5.90 per share, as the normal level. The window starts with the 2021 acquisition of GCA, which added Japan and a larger European business. It includes a boom (2022), a slump (2023-24) and a recovery (2025-26). Amortisation of acquired intangibles is small, about $15 million a year, and does not change the result. Recent trading. Owner earnings grew about 9% per share in fiscal 2026. The first quarter of fiscal 2027 (April to June 2026) was weaker: revenue was about $511 million against $605 million a year earlier, and net income about $78 million against $98 million. The filings available to us do not explain the drop. We treat it as an early sign of a slowdown, not a new normal, and start every case at or below last year's earnings. Base case ($173 per share). Earnings hold around $5.90 per share this year because of the weak first quarter. They then grow 7% a year for four years and 5% a year for the next five, reaching about $9.90 by year ten. These drivers are already visible: managing-director headcount rose about 4% last year (from 339 to 354), and per-share owner earnings have grown well over 10% a year across the past decade while the share count stayed between 66 and 69 million. After year ten we assume 3% growth for another decade and flat earnings after that. That rests on a franchise that has won mandates since 1972 and serves more than 2,000 clients a year. Discounted at 6%, this is worth about $173 per share. Bear case ($84 per share). The first-quarter slowdown turns into a slump like 2023-24. Earnings fall to about $4.40 a share this year and $3.80 next, then recover to about $5.80 by year six. A second downturn in years seven and eight pulls them back to around $4. After that we value the business on a flat $5.20 a share, the average across that cycle, with no growth. The restructuring practice softens downturns (its revenue stayed between $522 million and $544 million in each of the last three years), and with no debt the firm can ride out a bad stretch. The main long-term risks are senior bankers leaving for rivals and the fee pressure that comes with that. Bull case ($245 per share). The first-quarter dip proves brief, and earnings come in around $6.20 this year. Hiring of managing directors and fee growth continue close to the past decade's pace: 11% a year for four years, then 8% for five, reaching about $13.80 per share by year ten. Growth then runs at 4% for another decade and stays flat after that. What the shares are worth and what could prove this wrong. We value the shares at about $173, within a range of $84 to $245. The biggest uncertainty is the deal cycle. A long drought in mergers, or the loss of a group of senior bankers, would push the outcome toward the bear case. We do not add the roughly $1.2 billion of cash on the balance sheet at March 2026 to the value, because much of it funds the bonuses paid each spring. Given how cyclical the business is, the estimate applies a discount of about 45% to the base value, which puts the margin-of-safety price near $95. From that price the bear case implies a modest loss.