Syntel's Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of IT outsourcing specialist Syntel (NAS: SYNT) dropped as much as 10.9% on very heavy volume.

So what: In a brand-new research note, analyst firm Susquehanna started covering Syntel with a sell rating and a $34 target price. Mr. Market pays pretty close attention to these notes, even with very little supporting analysis publicly available.

Now what: The negative rating caused some collateral damage to Syntel's rivals, though none nearly as bad as the target's own: Infosys (NAS: INFY) fell 4.7%, Accenture (NYS: ACN) lost 4.2%, and WiPro (NYS: WIT) shares got a 4.1% haircut. However, Syntel is a far less efficient business than any of these rivals lately, sacrificing both revenue and earnings growth for the sake of protecting its very commendable margins. In the second half of 2011, the company is going on an analyst hiring spree to reverse that ugly revenue trend -- but it looks like Susquehanna doesn't place much value on that plan. For what it's worth, Syntel sports a perfect five-star CAPS rating while Susquehanna gets a below-average 36% of its calls in this sector right. In other words, this could be a great setup for a bounce if you see Syntel's hiring project paying dividends.

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At the time this article was published Fool contributorAnders Bylundholdsno position in any of the companies discussed here.Motley Fool newsletter serviceshave recommended buying shares of Accenture. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool isinvestors writing for investors.

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