Canadian Natural Resources: Keystone's Biggest Winner

| About: Canadian Natural (CNQ)

A final decision is expected soon for the controversial northern part of the Keystone pipeline. The route for the pipeline has been changed to avoid an aquifer in Nebraska that was the core of the "stated" objections to the previous route.

The approval of the pipeline is supported by 62 senators as well as 65% of the American public. Given the most anemic post war recovery on record under his watch as well as his plummeting approval ratings, one would think the president would pivot on this "shovel ready" infrastructure project.

I am skeptical but hopeful that this long delayed project will be approved in the near future which would also help repair a rift with our Northern neighbor. If the pipeline is approved, one of the biggest winners would be Canadian Natural Resources (NYSE:CNQ); a huge oil sands play north of the border.

Almost 50% of the company's current oil production is Canadian heavy crude. This crude, because of a lack of economical transportation options (Ex, pipelines), is "trapped." As such, it trades at a ~$30/barrel discount relative to WTI (West Texas Intermediate) which is the U.S. benchmark.

Obviously a pipeline would greatly narrow this price gap and provide a substantial boost to Canadian Natural Resources' earnings and margins. From an economic standpoint, Canadian Natural Resources would probably reap more gains from the approval of the pipeline than any other energy concern.

It should be noted that this gap should start to narrow next year regardless of whether Keystone is approved as the company has invested and partnered to grow additional rail capacity. A pipeline would provide more economical impacts and lower transportation costs.

Canadian Natural Resources is an attractive energy play outside of this controversial decision. Earnings are tracking to a ~60% gain this fiscal year and analysts believe at least another 20% increase is in store for FY2014.

The shares are not expensive at just over 11x forward earnings. The stock also sports a five year projected PEG of under 1 (.69). CNQ provides a 2.3% dividend yield after the company recently raised its dividend payout some 60%. The median price target held by the 13 analysts that cover the shares is north of $39 a share, more than 20% over the current stock price. Finally, the company was mentioned in this weekend's Barron's as one of the top ten large capitalization stocks to own in 2014. BUY

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CNQ over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.