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FedEx's Stock Has Limited Upside

NEW YORK ( TheStreet) -- When shares of FedEx (FDX - Get Report) reached a high of $118 more than a week ago, I reached for my wallet to check how much money I had. No, I wasn't thinking about buying the stock. I needed some proof the full-blown economic recovery, on which this stock is trading, was actually real.

If we can look beyond the shutting down of our government, there are indeed meaningful signs of fiscal progress here in the U.S. But that's not necessarily the case for other FedEx markets like Europe, Asia and Latin America. Given that the stock now trades at the pre-global-recession highs of 2006, it's time to approach with caution and ship some FedEx shares out of your portfolio.

Now, I won't deny that in the company's more recent earnings report FedEx did exactly what it had to do to deliver on both the top and bottom lines. But I'm not willing to overlook that although revenue advanced 2% year over year to $11 billion, this is still a company in transition and have instituted strict cost-cutting measures.

To that end, CEO Fred Smith, who has his finger on the pulse of the global economy, didn't seem too optimistic about what's around the corner, saying: "FedEx Express remains focused on reducing costs while facing challenging global economic conditions." Not surprisingly, even after the slight revenue and earnings beat, management wasn't confident enough to raise fiscal-year guidance, with growth expected to be in the range of 7% to 13%.

On some levels this could be seen as a positive, given that FedEx was forced to lower guidance earlier this year. But to the extent that the unchanged guidance supports a stock price that is trading as if all global economic worries are over, I don't believe it does.

Let's not forget, even though FedEx has always been a true leverage play on global economic growth, there is a reason why the company has begun to focus on cheaper shipping options. Management has realized, by virtue of sustained declines in the Express segment, that consumers in both developed and emerging markets are no longer pursuing FedEx's higher margin services.

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