Investing.com -- Carnival shares offer a favourable risk-reward profile despite fuel-related earnings pressure, according to a note from HSBC following the cruise operator’s latest quarterly earnings.

Analyst Meredith Prichard Jensen lifted the stock to Buy from Hold, with a $30.10 per share price target.

The firm says fourth-quarter results were “indicative of continued resilient demand, improving operating discipline, and positive impact of deleveraging.”

HSBC highlights stronger-than-expected revenue performance, noting that solid revenue growth “reflects healthy net yield +2.7% y-o-y” and stronger onboard spending, which was +8.3% year over year.

Cost controls also supported margins, with adjusted EBITDA rising 5.1% year over year. Liquidity continues to improve, backed by customer deposits that climbed 9% to $7.5 billion.

While the bank trims its 2026 and 2027 earnings forecasts by about 9%, mainly due to higher fuel costs, it argues that the core fundamentals remain intact.

HSBC now assumes average 2026-27 fuel expenses roughly 20% higher than previously, and sees modest capacity growth of about 1% along with net yield growth of 3.6%. Leverage is projected to fall to 2.6 times in 2027, down from 7.0 times in 2023.

Jensen notes Carnival’s stock has fallen around 25% since the onset of OEF2, driven by its unhedged exposure to fuel prices.

However, the shares now trade at a discount, with a 2026 P/E of 9.9 compared with a two-year average of 12.4. The new target price of $30.10, based on a 9.0x EV/EBITDA multiple, implies roughly 19% upside.

HSBC adds that a $2.5 billion buyback program and an estimated 2026 free-cash-flow yield near 10% underscore improving financial discipline, while demand remains resilient with 85% of 2026 bookings secured at healthy pricing.