Synnex Corp.'s shares fell Tuesday after the high-tech contractor's stock was downgraded by a group of Raymond James analysts.
THE SPARK: The analysts lowered their rating on the company's stock to "Underperform" from "Market Perform" saying that the roughly 33 percent gain in stock price during the past six months was an aberration and that the stock price should normalize soon.
THE BIG PICTURE: Synnex called for the redemption its $143.75 million convertible senior notes on April 16 and said that it will settle all of the outstanding convertible debt in cash, with a conversion date of May 17. Given the significant short interest in the stock, the analysts said that they suspect most of these shares recently sold were sold short as a hedge against the convert value. In a short sale, a trader agrees to sell a stock expecting that its price will fall before he has to deliver it.
The analysts said they believe the flurry of short interest covering is done. They believe shares will respond based on the company's business fundamentals going forward and as a result, shouldn't be trading at such a premium. They expect its valuation should revert to normalized levels soon.
SHARE ACTION: Shares fell $3.02, or nearly 6 percent, to $47.68 in afternoon trading Tuesaday. The company's stock price is up more than 48 percent since this time last year.