Last Friday, Chimera Investment Corporation (NYSE:CIM) fell by almost 3% to close at $2.95, also marking a 2.3% loss for the week. While the stock is still up 15.7% for the year, having been on an upward trajectory since early January, it has been rather volatile, trading between $2.51 and $3.12 in the past three months.
The most recent decline was due to the company's announcement last Thursday that it would be replacing its auditor Deloitte & Touche LLP with Ernst & Young LLP. This also came shortly after its announcement on 1 March that it would be delaying the release of its year-end financial results. The problem appeared to be related to the GAAP valuation of the non-agency mortgage securities owned by the five-year old company that invests in distressed mortgage securities. According to Chimera, any changes should only result in a non-cash change in the GAAP accounting results, and will not affect the company's book value, cash flows, dividends and/or taxable income.
This is also the second consecutive quarter that Chimera had to delay the filing of its quarterly report. Last quarter, Chimera said that the delay was related to an accounting issue regarding the company's treatment of other-than-temporary impairments (OTTI). The company stated that its investments in securities rated less than AA, non-rated non-agency securities and other subordinate securities should have been evaluated for impairment under ASC 325- Investments-Other-Beneficial Interest in Securitized Transactions instead.
Notwithstanding the above, most analysts are maintaining their "hold" rating on the company, which has a market cap of $3 billion. After all, Chimera does have some attractive traits, such as its revenue growth, a good return on equity (of almost 15%) and attractive valuation levels. On the other hand, the company does not have a very good debt management record and a rather volatile stock performance thus far.