Out of the Gate: American Capital slides after downgrade

The stock fell $2.51, or 7.8 percent, to $29.50 shortly after the opening bell. The stock has traded in a 52-week range of $26.15 to $48.84.

UBS Investment Research analyst Ajay Jain cut his rating to "Sell" from "Neutral" and his price target to $28 from $34. The new target implies he expects the stock to fall about 13 percent over Friday's $32.01 close.

The new accounting rule, which dictates companies value assets at market value, took effect in January.

"In this context, we think that American Capital has more downside risk to net asset value as compared to its peer group," Jain said in a note to clients.

The changes may deteriorate credit quality and put pressure on 2008 earnings, he said.

The Wall Street Journal reported Monday that the accounting changes could have a large impact on American Capital's shares as the company has previously valued loans far higher than its peers.