Arch Chemicals declines as analyst warns of high costs

NEW YORK—Shares of Arch Chemicals Inc. declined Tuesday after an analyst started coverage of the company with a low rating, given high raw-material costs and a softening U.S. economy.

Shares declined $2.94, or 8 percent, to close at $34.01.

Arch, which makes treatments for water and wood, is likely to lower its 2008 outlook when reporting first-quarter results on May 6, according to KeyBanc Capital Markets analyst Saul Ludwig.

Ludwig, who initiated coverage of Arch at "Underweight," said the company is facing high raw-material and transportation costs, weakness in the North American residential construction sector and a tight market for acquisitions. The latter may make it hard for Arch to sell some of its businesses, Ludwig added.

"Macro-economic headwinds, which the company has very little control over, and no near-term catalyst should cause shares to underperform the overall market in the near term," Ludwig wrote in a client note.

On the positive side, Ludwig said Arch still is the market leader in many markets and is likely to hire an executive who may ramp up the timing of acquisitions and divestitures considerably.

Ludwig's $32 price target implies a decline of 13.4 percent from Monday's closing price.