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While I don't usually like to highlight rating changes, I think these two are meaningful:

- First Albany is upgrading their rating on Travelzoo (NASDAQ:TZOO) to Strong Buy from Underperform as the basis of their Underperform rating - a 4Q:FY06 earnings miss - has passed. Now, they see a combustible mix of likely 1Q:FY07 upside, compelling valuation, and high short interest in Travelzoo shares. Firm also thinks the significant insider selling that pressured shares through 2006 is done.

Yesterday Travelzoo reported 4Q revenue and EPS of $17.7 million and $0.26 (see conference call transcript) versus firm's expectation of $17.9 million and $0.27 and the Street consensus expectation of $18.3 million and $0.28, respectively.

Firm sees upside to the 1Q:FY07 Street consensus and to their Street-high expectations. They believe the 1Q:FY07 Street consensus, as it stood before yesterday's results ($20.5 million in revenue and $0.32 in EPS) inadequately accounted for the easy comparison Travelzoo will enjoy now that results will no longer "comp" the 2005 departure of 10% customer Travelocity. In fact they view their revenue and EPS estimates of $20.8 million and $0.33, respectively, to be conservative.

High short interest could be rocket fuel. With more than 11 days' of trading volume in Travelzoo shares sold short, the upside the firm sees to 1Q:FY07 estimates could drive significant share price increases. CEO Ralph Bartel was an active seller of Travelzoo shares in 2006. However, with his ownership now hovering a tad above 50%, we think his selling is mostly done.

Tgt goes to $38 from $26.

- Stifel notes that despite a weak quarter, they are upgrading their rating on TZOO shares to Hold. Based on after hours pricing of $29.80, the shares trade for 20.4x 2008 earnings. They remain cautious on TZOO but no longer believe the shares justify a Sell rating.

The company gives no information about its business to allow an investor to make a rational investment decision. That said, TZOO trades for 20.4x 2008 estimates based on after hours pricing of $29.80. TZOO is a high margin business in an industry with respectable long-term rates of growth. Given that after hours pricing suggests shares are within 6% of their $28 fair value estimate, they are adjusting their rating to Hold. Firm remain cautious on the company due to management share distribution, limited information, and slowing trends in the North America business. They would be buyers of the stock in the low-$20s, all else equal.

Notablecalls: The stock is a notorious short killer. Short interest stands at 30%+, so I would expect an explosive move upward from levels reached in after mkt. First Albany may have created something big here. Actionable call. Sitting at my old trading desk I would buy every stock below $32 level and then take the price up by another 1.5-2 pts. Actionable!

tzoo

Source: Travelzoo: Great Bounce Candidate