The shares of cruise operators are falling after JPMorgan downgraded its ratings on two stocks in the sector, Royal Caribbean (RCL) and Norwegian Cruise Lines (NCLH), to Neutral from Overweight. The sector's net yields and prices probably won't rebound significantly, predicts the firm.

SECTOR OUTLOOK: After analyzing various metrics, including GDP growth, capacity changes, and spending assumptions, JPMorgan analyst Joseph Greff says he does not anticipate "a meaningful fundamental turn in net yields/pricing" in the cruise industry. Such a rebound would be the most likely factor that could improve investor sentiment towards the sector and raise the multiples of cruise stocks, the analyst stated. Additionally, Greff expects cruise operators' earnings per share to come in below the estimates of sell-side analysts going forward, he stated.

ROYAL CARIBBEAN: The company's results will probably be hurt by the "eroding net yields" of its China business and the roughly 50% expected increase in cruise ship capacity in 2017, according to Greff. "Ongoing weakness" in Europe will also probably dampen Royal Caribbean's results, the analyst warned. Greff cut his price target on the name to $73 from $96.

NORWEGIAN CRUISE: Weak demand for European cruises by North Americans, along with declines in overall demand due to the company's decision to hold the line on prices, caused Greff to downgrade the stock. He lowered his price target on the shares to $44 from $62.

CARNIVAL CRUISE: Greff kept a Neutral rating on Carnival, citing what he called its "premium" valuation, "challenging" macro trends, and challenges in raising its net ticket yields. He lowered his price target on the shares to $46 from $58.

PRICE ACTION: In late morning trading, Royal Caribbean slid 2% to $68.27, Norwegian retreated over 5% to $35.91, and Carnival gave back 2% to $46.20.