Sum-Of-The-Parts Analysis Leads MKM To Raise Alibaba Price Target To $130

Sanderson's calculations derived a value for Alibaba's Commerce business at $94 per share, the Cloud business at $18 with a marked-to-market or book value for other assets.

"We remain bullish on the stock and think Alibaba will be the best performing large-cap in the Internet sector over the next 12-months," Sanderson noted.

Core Commerce

Sanderson noted that he values Alibaba's core commerce segment at 25x his calendar year 2017 net profits forecast, which is still considered "low for a growth asset" within the e-commerce segment. The analyst also assumed "little" margin expansion through next year — an assumption which "may be conservative."

Related Link: Strategies For A Sleepy Bull Market

Cloud Business

Sanderson's valuation model also assumes the Chinese cloud total addressable market will become a $20 billion market within five years and the company controls a "dominant" 65 percent share. At a 28 percent operating margin, the analyst expects Alibaba to realize $3 billion in net profit over the time frame.

Also, Sanderson is assuming a 30x forward multiple for the segment in four years and, when discounted, back at 25 percent to 2017.

Other Segments

Ant Financial is a "gem" given recent valuation rounds, which valued the company at $60 billion and contributes $8 per share.

The marked-to-market value of publicly traded companies in Alibaba's portfolio are worth $12.7 billion today, or $5 per share.

Finally, Alibaba holds interests in over 100 private companies, "many" of which could prove to be long-term winners. However, the analyst valued these companies as contributing zero value toward Alibaba's stock for the time being.

Full ratings data available on Benzinga Pro.