After 1Q26, near-term pressure builds for investment bank stocks, but structurally driven businesses still support Buy-rated names

Overview

This report revisits the key disagreements after 1Q26 earnings for the Americas independent investment banking group. Goldman Sachs notes that the near-term outlook for the segment is mixed: large strategic M&A, restructuring, and secondaries activity are strong, but mid-sized deals and sponsor M&A have yet to show a clear recovery, leaving the market uncertain about where the M&A cycle stands, how much earnings leverage is available, and whether valuations are justified.

Core views

Goldman Sachs lays out four core themes: first, strategic M&A is already at a high level but may still improve, while the timing of a sponsor M&A inflection remains unclear; second, restructuring is in a strong cycle, supported by more bankruptcy filings, macro and geopolitical uncertainty, private credit disruptions, and rate and technology shocks; third, secondaries show structural growth characteristics, benefiting from blocked PE exits and LPs becoming more active in managing portfolios; fourth, slower-than-expected revenue growth pushes compensation and operating leverage later, lowering 2026E-2028E earnings forecasts.

Analysis framework

The report combines 1Q26 earnings results, Dealogic transaction data, M&A mix decomposition, historical correlations for restructuring revenue, secondaries fund-raising and revenue estimates, compensation ratio and margin forecasts, and NTM P/E valuation percentiles to compare the independent investment banking group and key names such as EVR, HLI, PIPR, and PJT.

Methodology notes

• Valuation methodsNTM P/E percentile comparison

  Uses forward 12-month P/E based on GSe and consensus estimates, together with historical percentiles, to measure valuation.

  The group trades at about 16.5x GSe/consensus NTM P/E, roughly the 70th/65th percentile over the past 11 years, and Goldman Sachs views valuation as broadly fair given balanced upside and downside risks.

• Business cycle analysisM&A mix decomposition

  Breaks M&A activity into strategic M&A, sponsor M&A, large deals, and mid-sized deals to judge the quality and sustainability of revenue drivers.

  Strategic M&A remains strong year over year and buyers are relatively insensitive to market conditions; sponsor M&A is weighed down by exit difficulty and return pressure, and accounts for only 26% of total M&A in 2026TD.

• Earnings forecastCompensation leverage and operating leverage analysis

  Assesses the transmission from revenue growth to EPS through changes in compensation ratio, non-compensation costs, and pre-tax margins.

  Revenue growth below expectations led Goldman Sachs to raise compensation ratio forecasts for the next three years and push operating leverage release out beyond 2026E.

• Factor descriptionGS Factor Profile

  Goldman Sachs Factor Profile ranks stock characteristics across four dimensions: Growth, Financial Returns, Multiple, and Integrated.

  Growth is mainly based on forward sales, EBITDA, and EPS growth; Financial Returns is based on ROE, ROCE, and similar metrics; Multiple is based on valuation metrics such as P/E, P/B, and P/D; Integrated combines growth, returns, and valuation.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• EVR

  Key Buy-rated name; benefits from strategic M&A, secondaries, and business diversification.

  Strengths

  12-month target price is $404, implying 21% upside; expected 2025-2028E revenue CAGR is 15%, above the peer average of 11%; secondaries account for 14% of 2025 revenue, versus about 5% for the group.

  Weaknesses

  Management guidance suggests 2Q26 revenue could decline significantly sequentially from 1Q26, and valuation is about 17.5x GSe NTM P/E, around the 90th percentile over the past 11 years.

  Comparison

  Compared with peers, EVR has stronger non-M&A revenue diversification and secondaries exposure.

  Risks

  Volatility in large deal timing, slower-than-expected conversion of M&A completions and backlog, and a high valuation percentile.

• HLI

  Key Buy-rated name; has advantages from restructuring and a through-cycle business mix.

  Strengths

  12-month target price is $179, implying 19% upside; restructuring business accounts for about 22% of revenue, above the peer average; a fixed 61.5% compensation ratio provides margin protection; 2026E pre-tax margin is about 26%, above the peer average of about 17%.

  Weaknesses

  Exposure to mid-sized and sponsor M&A brings cyclicality, but also provides upside optionality for a future recovery.

  Comparison

  Excluding PJT, HLI has one of the strongest restructuring tilts among peers; the current P/E premium is about 1.0x, below the roughly 7.0x level seen historically during periods of weakening M&A.

  Risks

  Slower restructuring demand, less-than-expected credit stress, and delayed M&A recovery.

• PIPR

  Key Buy-rated name; financial services M&A/DCM and light-inventory trading provide differentiation.

  Strengths

  12-month target price is $97, implying 23% upside; M&A/DCM revenue exposure to financials is 34%/68%; trading revenue CAGR from 2011-2025 is about 7%, providing a hedge during weak macro periods; 2026E pre-tax margin is about 22%, above the peer average of about 18%.

  Weaknesses

  The market may still be underestimating its through-cycle model; valuation is about 16.0x GSe NTM P/E, roughly the 85th percentile over the past five years.

  Comparison

  Compared with peers, PIPR is more concentrated in financial services and bank M&A/DCM, and it also has a more flexible compensation structure.

  Risks

  Weaker-than-expected activity in financial sector transactions, less-than-expected regulatory improvement, and delayed valuation re-rating.

• PJT

  Key Buy-rated name; exposure to large strategic M&A, restructuring, and secondaries offers the strongest defensive-growth mix.

  Strengths

  12-month target price is $190, implying 21% upside; about 35% of 2025 revenue came from restructuring and 18% from secondaries; exposure to large M&A and strategic M&A is 48% and 73%, respectively, above the group averages of 25% and 53%.

  Weaknesses

  Business is affected by deal completion timing and market risk appetite; absolute valuation is about 20.5x NTM P/E.

  Comparison

  Compared with peers, PJT's countercyclical restructuring, structural secondaries, and large strategic M&A mix stands out, and its P/E percentile is about 65th, below the group's roughly 70th percentile.

  Risks

  A slowdown in the restructuring cycle, secondaries growth below expectations, and peer earnings estimates being cut by less than Goldman Sachs expects.

• Independent investment banking group

  The group of Americas independent investment bank stocks covered in the report.

  Strengths

  Strategic M&A, large M&A, restructuring, and secondaries still provide structural or cyclical support.

  Weaknesses

  Sponsor M&A and mid-sized M&A recovery remain unclear, compensation leverage has been pushed out, and 1Q26 EPS missed expectations.

  Comparison

  The group trades at about 16.5x NTM P/E, at a historically elevated percentile, while shares have already corrected on earnings and cycle concerns.

  Risks

  Misjudging the M&A cycle again, geopolitical risks, rising rates, and continued difficulty in private exit markets.

Key data

• Independent investment bank stock performanceDown about 4% on average, underperforming the S&P 500 by roughly 7 percentage pointsThe period is from the day before the first 1Q26 investment banking earnings release to the report date.
• 1Q26 EPS miss6% below expectations on averageRevenue was 1% above expectations, but margins were about 60bps lower.
• Announced M&A volumeUp 34% year to date year over yearLarge M&A is up 74% year over year, and strategic M&A is up 54% year over year.
• Sponsor M&ADown 2% year to date year over yearSponsor M&A accounted for 26% of total M&A in 2026TD, below the 5-year/10-year averages of 34%/31%.
• Restructuring revenueUp 65% over the past three years; expected to decline 3% year over year in 2026EGoldman Sachs expects growth to turn positive again in 2027E.
• Secondaries fund raisingUp 58% year over year in 1Q26Excludes the impact of Ardian's $30bn large transaction in 1Q25.
• Secondaries revenue growthAbout 60% CAGR from 2023-2025; expected to grow 15% year over year in 2026EPJT and EVR have relatively higher revenue exposure to this business.
• EPS forecast adjustment2026E/2027E/2028E cut by an average of 5%/4%/3%Mainly reflects weak near-term M&A, delayed compensation leverage, and lower operating leverage.
• Compensation ratio forecast adjustmentRaised by 60bps/50bps/50bps for 2026E/2027E/2028ECorresponding compensation leverage is 30bps/100bps/80bps, respectively.

Impact & implications

The report's investment implication is that the group's overall valuation is not cheap, and investor sentiment may stay subdued until broad M&A growth sustainability and a clear recovery in sponsor M&A become more evident; however, companies with exposure to large strategic M&A, restructuring, secondaries, or more stable through-cycle business models are more likely to outperform. Goldman Sachs therefore prefers EVR, HLI, PIPR, and PJT.

Risks

• Sponsor M&A may remain unrecovered for too long, keeping transaction revenue and investor sentiment under pressure.
• Large strategic M&A is already at a high base, making further growth harder.
• Geopolitical and macro uncertainty may suppress deal completion and corporate confidence.
• Persistently high interest rates raise financing costs and affect private transactions and refinancing.
• Pressure on compensation ratios and non-compensation costs may continue to compress margins.
• If secondaries and restructuring grow less than expected, the structural support thesis will weaken.
• The group's valuation is at a relatively high historical percentile, so if earnings expectations are cut further, valuation may come under pressure again.

What to watch

• Whether broad M&A growth can continue, rather than being driven only by a few large strategic deals.
• Whether sponsor M&A as a share of total M&A rises back above the 26% level seen in 2026TD.
• Ahead of the 2028-2029 debt maturity wall, whether bankruptcy filings, credit spreads, and refinancing pressure continue to rise.
• Whether secondaries fund-raising and advisory revenue can maintain an approximate 15% mid-cycle growth pace.
• Whether compensation ratios and pre-tax margins from 2026E to 2028E improve in line with Goldman Sachs forecasts.
• Dealogic trends, backlog conversion, and management guidance for EVR, HLI, PIPR, and PJT.
• Whether the market re-rates the group higher once M&A sustainability becomes clearer.