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Muddy Waters Says It's Short OSI Systems, Sending Stock Down

Muddy Waters Says It's Short OSI Systems, Sending Stock Down

(Bloomberg) -- Shares of OSI Systems Inc. plunged after investor Carson Block said his firm Muddy Waters Capital was shorting the technology and medical supplier, calling it “rotten to the core” and saying it was over-reliant on a sales contract with questionable pricing.

Shares of Hawthorne, California-based OSI dropped as much as 12 percent Wednesday, their biggest intraday drop since April 2016.

“The major major contract these guys have is a turnkey contract in Mexico, and that’s up for renewal,” Block said during an interview on Bloomberg TV. “The pricing on that appears to be egregious and a lot of investors don’t understand the economics of this.”

A spokesman for OSI declined to comment when reached Wednesday morning.

OSI describes itself as a supplier of electronic systems for medical, security, defense and aerospace uses. Security products make up more than half of its sales, according to data compiled by Bloomberg. Over the last five years through Tuesday, the shares have returned 39 percent.

Block also accused the company of obtaining a contract in Albania through corruption. 

“If Mexico got renewed on the same terms, you’re not going to see the bottom fall out of it. But if there is scrutiny of this contract, if the pricing is lowered a decent bit, that will obviously wash through, if our estimates are anywhere near correct, to the P&L in a big way.”

--With assistance from Joshua Fineman

To contact the reporters on this story: Drew Armstrong in New York at darmstrong17@bloomberg.net, Katia Porzecanski in New York at kporzecansk1@bloomberg.net.

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Cynthia Koons

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