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Carnival Drops on Merrill Downgrade

Shares of cruise operator Carnival declined in Friday trading when a Merrill Lynch analyst downgraded the stock, cautious on pricing weakness in the Caribbean this winter and into next summer.

Analyst David W. Anders, who downgraded the stock to "Neutral" from "Buy," said Caribbean ticket prices range from unchanged to a 15% decline, relative to last year's levels, across Carnival Cruise Lines, Royal Caribbean International and Princess.

"Although observed pricing in November and December for summer sailings is typically not critical, it does indicate the company will be entering the wave season at much lower prices than we had anticipated," Anders wrote. The wave season is an important period of heavy bookings that runs from January through March.

"This year, considering that prices in the Caribbean are generally below last year's levels by as much as 15 percent in some low-end trades, even if we see some price increases during the wave season, the average selling price in the Caribbean is unlikely to be higher than 2006," Anders wrote.

But Anders expected some of the weakness in the Caribbean to be offset by higher ticket prices on non-Caribbean itineraries.

"Our preliminary research indicated year-over-year pricing gains in premium markets, such as Alaska and Europe," Anders wrote in a client note.

Ticket prices in Alaska are running 1% to 7% higher on a year-over-year basis, and ticket prices in Europe are flat to up 1 percent -- also compared to a year ago.

Anders kept a "Buy" rating on Royal Caribbean Cruises , expecting the stock to outperform on increased fleet allocation to Europe and an additional Freedom-class vessel. In May, Royal Caribbean launched The Freedom of the Seas, the world's largest cruise ship.

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