Jefferies & Co. upgraded its rating on shares of ValueClick Inc. (NASDAQ: VCLK) to buy from hold and increased its price target to $20 from $17, based on improving fundamentals and lower risk profile.

We're upgrading ValueClick to reflect higher growth potential in core segments over time, strengthening ad/e-com environment, solid execution following the return of Jim Zarly as Chief Executive Officer and lower risk profile, said Youssef Squali, an analyst at Jefferies.

Squali said ValueClick reported good first quarter results that were in-line with last week’s pre-announcement, with revenue of $116.5 million and $35.1 million in adjusted EBITDA. Strength was driven by Media, Owned & Operated Websites and Affiliate segments, with organic revenues up 18 percent year-over-year from his estimate.

Squali said organic revenue growth was a healthy 18 percent year-over-year by his estimate, benefiting from 20 percent-plus organic growth in Owned & Operated Websites as well as better than expected performance across Media and Affiliate. Earnings were $0.26 per share versus consensus of $0.18 per share and management's original guidance of $0.16 to $0.17 per share.

Squali said media segment outshined the rest, with revenues up 18 percent year-over-year versus 4 percent in fourth quarter and ahead of management's guidance for “low double-digit” growth.

Squali believes media area remains the one with the biggest upside opportunity given improving advertiser demand and availability of exchange inventory, management's growing focus on branded display ads and push into video and mobile, and sales force expansion. Second quarter media segment revenue outlook to be up mid-teens organically (and high 20 percents including about $4 million from Greystripe.)

Owned & Operated Websites revenue was up 36 percent year-over-year (about 22 percent excluding Investopedia), exceeding the company’s original outlook for “high 20 percents/low 30 percents”. The impact from Google algorithm change appears to have been minimal in first quarter and could be a net positive going forward. Management expects mid-to-low 20 percent growth in Owned & Operated Websites for second quarter of 2011 with near-term focus on margin improvement.

Commission Junction's growth remains consistent, with revenue up 17 percent year-over-year in first quarter versus 15 percent in fourth quarter with segment margins at 59.4 percent, consistent with fourth quarter of 2010 levels and up from 55 percent a year-ago.

ValueClick's management guided to second quarter revenue of $120 million to $122 million, EBITDA of $34 million to $35 million, and GAAP earnings of $0.25 to 0.26 per share. Squali noted that the guidance includes the impact from the Greystripe acquisition, with about $4 million in revenues, about $0.01 negative hit to EPS and immaterial impact on EPS.

The brokerage lowered its 2011 EPS estimate for ValueClick to $0.90 on revenue of $518.3 million from $1.22 on revenue of $523.9 million. The brokerage reduced its 2012 EPS estimate to $1.07 from $1.28, while increasing its revenue estimate to $583.7 million from $575.5 million.

We are encouraged by positive trends in the business and believe that management continues to execute well in an improving ad/e-Com environment. We're adjusting our estimates to reflect 1Q results, guidance and a lower risk profile given management's manageable reliance on Google for traffic/revenues and improving trends in core segments. While we're tweaking our GAAP EPS estimates downward for fiscal 2011 and 2012, we remain at or above consensus, said Squali.

ValueClick stock closed Tuesday's regular trading down 1.32 percent at $16.47 on the NASDAQ Stock Market.