TransCanada is a long-term buy (regardless of Keystone outcome)

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When you hear the name TransCanada Corp. these days, you're likely to associate it with deep disappointment.

The company has become best-known among casual observers for its proposed $5.4-billion Keystone XL pipeline, an extension that would deliver 50 per cent of Alberta crude to refineries on the U.S. Gulf Coast – and the news on that front has been dismal.

The extension, loathed by environmentalists and a number of U.S. politicians, has met with several delays and a baffling approval process over the past six years.

It hit yet another snag last week after the U.S. State Department said it would delay a decision on approving the pipeline until next year at the earliest, which sounds like an indefinite stalling tactic.

But if stocks look their best when companies are beset with short-term problems, then TransCanada looks like a compelling buying opportunity for longer-term investors right now.

Admittedly, the stock is not exactly beaten up, despite a few setbacks.

It fell 3.7 per cent on Monday, for its worst one-day decline since June, 2009. Analysts at Scotia Capital and CIBC World Markets lowered their recommendations to "sector perform" from "sector outperform" and trimmed their 12-month price targets to $53 and $54, respectively – down a few bucks.

But the damage looks slight when put into perspective. The share price is less than 3 per cent below its record high earlier this month, following a modest rebound on Tuesday and a minor dip of 0.40 per cent, on Wednesday.

That hardly implies deep disillusionment with the stock.

Over the longer term, the stock has returned 165 per cent (including dividends) over the past 10 years, outperforming the S&P/TSX composite index by 47 percentage points.

The stock doesn't look depressed based on valuation either. It has a price-to-earnings ratio of 22, based on trailing earnings. That's above its 10-year average of 19 and implies optimism about the company's growth prospects.

But even though TransCanada hasn't been terribly wounded by the Keystone setbacks, the delays are likely acting as a significant drag on investor interest. This sets up a couple of favourable scenarios.

If Keystone gets the thumbs-up from the U.S. government, TransCanada shares will surely rally.

The company talks up the economic benefits of Keystone XL, largely in terms of the jobs generated and the energy security it would bring to the United States. However, extending TransCanada's oil pipeline assets is no doubt good for TransCanada and its investors too.

Oil pipelines represent just a quarter of the company's total assets, versus close to half in the case of natural gas pipelines – but oil shows better growth. Revenue from oil pipelines grew 8 per cent last year, compared to 5 per cent for natural gas pipelines.

Oil pipeline earnings, after accounting for interest and taxes, grew 9 per cent. That compares to just 2 per cent for natural gas.

In this context, Keystone looks awfully important to TransCanada's future. But what happens to the stock if Keystone is ultimately rejected, which is scenario number two?

Monday's sharp decline can be seen as a test for what could happen in the short-term, if investors smell failure.

But any pessimism over the company's future wouldn't last long. While the Keystone extension is a big project, it represents just a seventh of the $38-billion in TransCanada's capital projects scheduled to be completed by the end of the decade.

The company's importance to the North American energy industry is also hard to overstate, with or without the extension: Its natural gas and oil pipelines run throughout Canada and the United States, and even extend into Mexico, gaining importance with the rise of North American energy production.

For sure, the successful extension of the Keystone pipeline is an excellent reason to buy TransCanada; but the ongoing delays make the stock look even better.