Amazon Web Services continues to be a huge driver for bullish stances among analysts, with Morgan Stanley predicting that the segment will drive about 60% of forward profitability for the entire company. The firm raised its price target for Amazon from $750 to $800 per share.

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Amazon benefits from growing cloud adoption

Analyst Brian Nowak said in a report dated Nov. 11 that he is bullish on Amazon’s opportunity in the cloud industry. His new valuation of the company places a value of $63 billion on Amazon Web Services, which is a multiple of 5.3 times 2016 revenue and a 25% premium to the system-as-a-service comparable group. He values the core retail business at $300 billion.

Nowak believes Amazon is worth $800 a share even if the margins for its North American retail business only expand by about 300 basis points over the next five years and if margins for the International retail business only hit 2%. This year, he estimates the North America retail segment’s margin to be at around 5% and the International retail segment’s margin at about break even.

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Amazon’s NA retail business worth $256 billion

The Morgan Stanley analyst said that in valuing Amazon’s North America retail business, he’s assuming an 8% long term consolidated segment operating margin on his total revenue estimate of $154 billion for 2020. He said this is consistent with management’s comments about operating margins to land in the low double digits in the long term.

He added that the commentary implies that the North America retail business only sees its margins expand by about 60 basis points a year on average, compared to this year’s expected expansion of about 240 basis points. For his sum of the parts analysis, he uses an EBITDA multiple of 14 times, which is implied through a “mature retailer’s media 6%” free cash flow yield on his estimate for free cash flow.

Nowak applies that to his 2020 estimate of about $22.5 billion in EBITDA and then discount it back to the end of next year and reach their $256 million valuation for the segment, which amounts to $554 per share just for the North American retail business.

Amazon’s international retail business worth $44 billion

Turning attention to the international retail business, the analyst applies a long term steady state consolidated segment operating margin of 2% to his 2020 revenue estimate of $52 billion. He assumes that Amazon keeps investing heavily in its expansion efforts outside the U.S. by moving into new countries and adding more products and improving its logistics infrastructure.

He then applies an EV/ EBITDA multiple of 10 times, which he says is implied using the same 6% free cash flow yield for “mature retailers” on his free cash flow estimate for the $4.5 billion he’s estimating in EBITDA for the International business in 2020. Discount it back to the end of 2016, he gets a valuation of $44 billion or $111 per share.

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Amazon Web Services worth $63 billion

Nowak estimates Amazon Web Services at $63 billion or $131 per share based on an EV/ revenue multiple of 5.3 times 2016 revenue and a 25% premium on the company’s system-as-a-service peers.

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Shares of Amazon climbed by as much as 2.34% to $675.14 per share during regular trading hours today.

Charts in this article are courtesy Morgan Stanley.