Joshua Attie initiated coverage of Carnival with a "Hold/Medium Risk" rating and started Royal Caribbean at "Hold/High Risk."

While the companies will have easier comparisons next year, Attie cautions that less spending -- particularly by low-end consumers -- is hurting the Caribbean market. This will weigh on Carnival and Royal Caribbean, as the tropical locale makes up 40 percent of Carnival's capacity and nearly 50 percent of Royal Caribbean's, according to Attie.

Rising fuel costs are also likely to continue eating into profit margins at both companies. Attie predicts Carnival's 2007 profit margin will come in at 21.1 percent versus its peak of 27.2 percent in 1998. At Royal Caribbean, full-year profit margin is expected at 14.7 percent compared with 19.9 percent in 2000. Attie blames at least two-thirds of the lost margins on fuel pricing.

"We see few opportunities for cruise companies to drive margins higher in the absence of lower fuel expense or stronger net yield growth," he wrote in a note to clients.

Attie prefers Carnival over Royal Caribbean its better profit margin and lower balance sheet leverage. He gave Carnival a $48 price target and Royal Caribbean a price target of $42.

Shares of Carnival gained 58 cents to $44.78, while Royal Caribbean added 57 cents to $36.74 in morning trading.