Research firm Jefferies upgraded online travel agency Expedia (EXPE) to Buy from Hold, predicting that the company's revenue will increase at least 10% annually for the next two years. However, the analyst downgraded TripAdvisor (TRIP) to Underperform, its equivalent of a sell rating, from Hold. The firm believes that the stock will only rise by a limited amount, while Expedia and Priceline (PCLN) present better opportunities for investors.

Both Expedia and Priceline can do well in the online travel space, wrote Jefferies analyst Brent Thill. Expedia's revenue should grow by at least 10% in each of the next two years, and its margins should gradually improve "as it expands into new fragmented markets" and implements operational improvements, Thill wrote. Expedia's 2017 results should be boosted by improved business and consumer confidence, which should spur favorable travel trends, the analyst stated. Thill raised his price target on the stock to $180 from $140.

TripAdvisor continues to be focused on its transition to accepting bookings, but the turnaround won't be complete for a year, Thill stated. The "vast majority" of the benefits from the transition will only begin to materialize in 2018, he added. Additionally, Thill believes that the company is facing tough competition from Trivago (TRVG) and the online travel agencies. These competitors are spending a great deal on marketing, and TripAdvisor's own ad campaign will pressure its margins in the second half of this year and well into 2018, Thill warned. Also, the increased percentage of users who visit TripAdvisor's websites on mobile devices is pressuring the company's revenue, said Thill, who slashed his price target on the shares to $35 from $54.

Price Action 

In morning trading, Expedia lost 0.2% to $150, while TripAdvisor fell 3.7% to $41.72 per share.