Kratos’ (KTOS) Strong Performance Lifted Merion Road Portfolio in Q3

Core Insights - Merion Road Capital Management's third-quarter 2025 investor letter indicates a 5.0% return for the Merion Road Small Cap Fund, underperforming the Russell 2000 Index's 12.4% return, while the long-only portfolio achieved a 10.1% return, surpassing the S&P 500's 8.1% return [1][2] Group 1: Company Performance - Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) significantly contributed to the portfolio's performance, with the stock nearly doubling in Q3 due to positive industry developments and company-specific releases [3] - The stock's one-month return was -26.18%, but it gained 152.74% over the last 52 weeks, closing at $67.31 per share with a market capitalization of $11.364 billion on November 20, 2025 [2][3] Group 2: Industry Developments - The U.S. Defense Secretary announced plans to ramp up production and fielding of drones, positively impacting Kratos' outlook [3] - Kratos' Q2 earnings beat consensus expectations, and management highlighted several large wins post-quarter that are expected to boost Q3 bookings and enhance confidence in guidance for 2026-2027 [3] Group 3: Investment Positioning - The investment advisor reduced its position in Kratos to avoid an oversized stake, indicating a cautious approach despite the strong performance [3] - At the end of Q2, 33 hedge fund portfolios held Kratos shares, an increase from 17 in the previous quarter, suggesting growing interest among institutional investors [4]